Florida’s Homeowners Choice Makes Bid for 21st Century Holding

Homeowners Choice, Inc., a Florida-only homeowners insurance company founded in 2006, has sent a letter to the board of directors of 21st Century Holding Co. proposing a merger between the two companies.

In an Oct. 12 letter addressed to Bruce Simberg, board chairman of 21st Century, Homeowners Choice Board Chairman Paresh Patel proposed a cash and stock deal worth about $40 million.

“We believe a combination of the two companies would create a premier Florida-based insurance company mutually benefitting our companies, shareholders and employees while creating an entity stronger and better able to pursue growth,” said Patel in his letter.

Clearwater-based Homeowners Choice Inc. (HCI) writes homeowners, condominium owners and tenants insurance in Florida only.

Lauderdale Lakes-based 21st Century, through its subsidiaries Federated National Insurance Co. and American Vehicle Insurance Co., underwrites standard and non-standard personal automobile insurance, flood insurance, general liability insurance, mobile home insurance and homeowners’ property and casualty insurance in Florida.

In addition, the company is authorized to underwrite commercial general liability insurance in Arkansas, California, Georgia, Kentucky, Maryland, Missouri, Nevada South Carolina and Virginia as a surplus lines carrier and in Texas, Louisiana and Alabama as an admitted carrier. American Vehicle has applications pending to be a surplus lines carrier in additional states.

The Oct. 12 letter from HCI follows earlier communications between Patel and Simberg in which Simberg indicated that if Patel was serious he should make a formal offer for the 21st Century board to consider. On Aug. 20, Patel made an offer that was rejected by 21st Century on Sept. 4. Patel wrote that the rejection was disappointing “because any serious consideration of our proposal should have entailed at least one conversation between the two companies” about the benefits of a merger of the two firms.

In his most recent letter, Patel renewed his earlier offer $40 million offer and outlined what he believes the benefits of a merger would be.

He offered $1.00 in cash and 0.5 share of Homeowners Choice common stock for each share of 21st Century common stock. Based upon HCI’s Oct. 9, 2009 closing price of $8.60, the proposed offer values 21st Century shares at $5.30 per share, a premium of approximately 36 percent over 21st Century’s Oct. 9, 2009 closing price of $3.89.

As for the benefits, Patel told Simberg that a main benefit would be that the two could grow and be profitable together. He said that 21st Century is trying to grow in Florida and HCI has shown how that can be done while maintaining underwriting standards and profitability. In two years HCI has grown from zero to 60,000 policyholders and has 3,000 agencies throughout Florida. HCI has been profitable for eight consecutive quarters. He said the same strategy could be applied to the Federated National subsidiary of 21st Century.

Another potential advantage would be expansion capabilities, according to Patel. 21st Century has a number of licenses for other lines of businesses and other states, while HCI has focused on the Florida homeowners’ insurance market. Patel said 21st Century’s licenses coupled with HCI’s cash and marketing capability “would enhance the growth of these business lines and territories.”

Shareholders would also benefit, he contended. Combined, the companies would have a value in excess of $120 million, which would be beneficial to all shareholders and be large enough to attract institutional investors.

Policyholders would benefit from the combination of 21st Century’s corporate location and staffing in the south Florida tri-county area, along with HCI’s presence in the Tampa Bay area, according to Patel. The two locations could serve as backup locations to each other in the event of a hurricane, he wrote.

“Perhaps you did not have adequate time to review our proposal when it was made. Therefore we are renewing our offer…,” Patel wrote. “The good news is that our share value continues to go up and the proposal is worth about 20 percent more than when it was first tendered.”

HCI says it has the cash on hand for the deal so the proposed offer would contain no financing contingency.

Patel said the company made its offer known publicly to encourage 21st Century take it seriously.

21st Century has not yet publicly responded.