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Back-to-Back Deals for ProAssurance

Zacks Equity Research

ProAssurance Corp. (PRA) recently entered into an agreement to acquire leading underwriter Medmarc Insurance Group for $153.7 million. As per the agreement, the members of Medmarc will receive $146.2 million in cash as well as future policy credits worth $7.5 million.

Medmarc is one of the leading underwriters of products liability insurance for medical technology and life sciences in the U.S. The acquisition is expected to be completed by the end of 2012, subject to the approval of the regulators as well as Medmarc’s eligible members. The Boards of both the companies have approved the deal.

After obtaining the required approval from eligible members, Medmarc will be demutualized and converted to a non-public stock company.  Eligible Member refers to any medical technology or life sciences company holding an in-force policy issued by the company between December 31, 2010 and June 30, 2012.

Concurrently, ProAssurance also announced a merger agreement with the Independent Nevada Doctors Insurance Exchange (“INDIE”), a reciprocal exchange based in Nevada. The exchange will be converted into a non-public stock company in order to merge with ProAssurance. The financial and other terms of the deal, which is expected to culminate by the end of 2012, were not disclosed.

The merger has got the nod from the Board of ProAssurance and the Subscriber Advisory Committee of INDIE. However, it is subject to approval of INDIE’s subscribers and the Nevada Division of Insurance.

INDIE is Nevada’s leading medical professional liability insurer based on direct written premiums while ProAssurance currently occupies the fourth position in the state. Thus, following the merger, the latter will emerge as the leading writer of medical professional liability in Nevada by a huge margin.

Following the announcements, credit rating agency Standard & Poor's Rating Services affirmed its long-term counterpart credit rating on ProAssurance at “BBB” with a stable outlook.

ProAssurance, which primarily competes with Berkshire Hathaway Inc. (BRK.A) and MontpelierRe Holdings Ltd. (MRH), carries a Zacks #2 Rank, implying a short-term ‘Buy’ rating. We retain our long-term ‘Outperform’ recommendation on the company.

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