Tower Group to Acquire Specialty Underwriters’ Alliance of Illinois

New York-based Tower Group Inc. has agreed to purchase Specialty Underwriters’ Alliance Inc., headquartered in Chicago, in a transaction valued at approximately $107 million.

SUA said the deal will enable it to better leverage its independent general agent distribution network and expand.

Tower said the deal will allow it to create a separate underwriting and operational infrastructure dedicated to specialty business to take advantage of the growth opportunities in this area. The deal also gives Tower a Midwest regional office to support continued geographical expansion.

The boards of directors of Tower and SUA have approved the transaction, and the board of directors of SUA has recommended the transaction to its shareholders. The transaction is expected to close around year-end 2009.

The deal would appear to put an end to takeover attempts by Texas-based Hallmark Financial Services that SUA has been fighting. Hallmark owns 9.9 percent of SUA’s outstanding common stock and recently attempted to replace three members of SUA’s board of directors with candidates that Hallmark preferred. Hallmark has said there is a need for improved governance and board and management accountability to SUA stockholders. It also has criticized SUA’s operating performance.

SUA has renewed its partner agent program agreements with its three largest partner agents: Risk Transfer Programs LLC (RTP); American Team Managers Insurance Services Inc. (ATM) and AEON Insurance Group Inc. (AEON). The renewals extend the exclusivity of each partner agent relationship for an additional five years. RTP, ATM and AEON are SUA’s three original partner agents.

Ratings agency A.M. Best Co. commented after Tower’s announcement regarding the purchase of SUA that the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Tower Group Companies and its pooled members, the FSR of ‘A-‘ (Excellent) and ICR of “a-” of Bermuda-based CastlePoint Reinsurance Company Limited – all with a stable outlook – and the FSR of ‘B++’ (Good) and ICR of “bbb+” (both with a positive outlook) of new Jersey-based Kodiak Insurance Company remain unchanged.

Best placed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Chicago-based SUA Insurance Company “under review with positive implications,” following the merger announcement.

Best indicated that the “acquisition will allow SUA to better leverage its strong distribution network and expand its business opportunities through Tower’s higher rated paper.”