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Liberty Mutual to acquire Ohio Casualty

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FAIRFIELD, Ohio—Liberty Mutual Group Inc. said it will acquire Ohio Casualty Corp. in a $2.7 billion deal that will bolster the Boston-based insurer's small and midsize book of business.

Under terms of the deal announced last week, Liberty Mutual will acquire Fairfield, Ohio-based Ohio Casualty for $44 per share in a cash deal. The transaction, which is subject to shareholder and regulatory approval, is expected to close during the third quarter.

Ohio Casualty, a regional insurer, will become part of Liberty Mutual Group's Agency Markets business unit, which focuses on the small commercial and personal markets and now includes 11 other companies.

Edmund F. Kelly, Liberty Mutual Group chairman, president and chief executive officer said in a statement that Ohio Casualty is a "great fit" with Liberty Mutual's Agency Markets business. "With combined net written premiums exceeding $7.3 billion following this transaction, we will become the largest regional provider of property and casualty products distributed through independent agents in the United States," he said.

The deal reinforces Liberty Mutual's "commitment to its regional company strategy, and the independent agency distribution system, and...will help the combined organization extend its relationships in the personal lines and small- to medium-sized commercial markets more deeply into the local markets" in which they operate, said John L. Ward, chief executive officer of Cincinnati-based Cincinnatus Partners L.L.C., an insurance industry consulting company.

Liberty Mutual's business is divided into four business units: agency markets, which accounted for 28% of its $20.6 billion in net written premiums in 2006; personal markets, which accounted for 29%; commercial markets, which includes workers compensation, commercial automobile and general liability coverages, among others, which accounted for 20% of the total; and international markets, which accounted for 23%.

Liberty Mutual's largest line of business is private passenger automobile, which accounted for 27% of its net written premiums last year, followed by workers compensation, at 22%.

Ohio Casualty reported $1.41 billion in total net written premiums in 2006. Its largest business segment, commercial lines, generated $829.7 million in net premiums written, or 58.7% of the total, and targets small and midsize commercial accounts with $5,000 to $7,000 in average premiums, according to the insurer's annual report.

Its other business segments are personal lines, which accounted for $437.2 million in premiums, or 31% of the total, and specialty lines, which include commercial umbrella and fidelity and surety, which accounted for $145.3 million in premiums and 10.3% of the total.

Although licensed in 49 states, its business is concentrated in the Mid-Atlantic and Midwest regions, including New Jersey, Pennsylvania, Kentucky and Ohio.

"From Liberty Mutual's perspective, they're executing their strategy" of pursuing independent insurance agency business, said John Wicher, principal of San Francisco-based John Wicher & Associates. "They've been completing about three deals a year, and they've emphasized geographic diversification, not only in the states, but overseas." This deal "gives them a really strong presence in midmarket commercial and personal lines in the Midwest."