) announced that it has completed the acquisition of insurance
underwriting company - Medmarc Insurance Group. The acquisition,
which has been is effective from January 1, 2013, was structured
as an all-cash sponsored demutualization.
Consequently, Medmarc was demutualized and converted to a
non-public stock company after obtaining the required approval
from eligible members. Thereafter, ProAssurance purchased the
entire newly-created stock of the company for $153.7 million in
As per the agreement, Medmarc will distribute this cash to its
eligible members in the form of future policy credits worth $7.5
million along with $146.2 million in cash. 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.
ProAssurance financed the acquisition through secured loans
worth $125 million, borrowed under its existing credit facility.
The company had earlier considered liquidating certain securities
to fund the acquisition but decided against it and used the same
securities as collateral for the secured loans.
This was an extremely prudent step as the securities are
projected to yield a higher total return than the total borrowing
cost over the loan's projected life. This will lead to net
inflows for ProAssurance, which would have been lost had the
company sold the securities.
Moreover, the acquisition will help in the diversification of
ProAssurance's portfolio of insurance products. The addition of
Medmarc's legal professional liability business will also
increase the size of the acquiring company's lawyers'
professional liability business, which in turn will likely boost
Prior to the acquisition, Medmarc was among the leading
products liability insurance underwriters for the medical
technology and life sciences businesses in the U.S. The company
will continue operating from Chantilly, Virginia and will retain
its key executives in their current roles.
ProAssurance carries a Zacks #3 Rank (Hold). We retain our
long-term 'Neutral' recommendation on the shares. Another
operator in the property and casualty industry -
EMC Insurance Group Inc.
) - carries a Zacks #1 Rank (Strong Buy).
EMC INSURANCE (EMCI): Free Stock Analysis
PROASSURANCE CP (PRA): Free Stock Analysis
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