Insuring Growth? Liberty Mutual Buys Safeco

The private insurer's $6.2b deal will create the fifth-largest property-casualty company.
Stephen TaubApril 23, 2008

Liberty Mutual Group is buying Safeco Corp. for $6.2 billion in cash, creating the fifth-largest property and casualty insurer in the U.S.

Boston-based Liberty Mutual, a privately-held firm owned by its policyholders, is paying $68.25 a share for Safeco, a 51-percent premium over its Tuesday closing price of $45.23. The deal is expected to close by the end of the third quarter and is not subject to financing contingencies.

Currently, Liberty Mutual is No. 6 in that industry based on the company’s 2007 direct written premiums of $20.2 billion. Safeco’s direct written premium were $5.9 billion.

Safeco would become part of Liberty Mutual Group’s Agency Markets business unit, which had revenues of $5.6 billion in 2007. Combined, the organization will have about 15,000 independent agencies.

“Safeco’s operations and product mix complement our existing Agency Markets operations,” said Liberty Mutual Chairman, President and CEO Edmund F. Kelly. “Additionally, both organizations have superb Surety businesses which when combined will form the second largest Surety business in the United States.”

With revenue approaching $12 billion, the combined Agency Markets operations will rank third in personal property, and fifth in commercial property and casualty products distributed through independent agents, Liberty Mutual said. Agency Markets, which focuses on independent agency distribution, had $5.2 billion in net written premium in 2007 and has about 7,000 employees.

Later in the day, the Standard & Poor’s and Fitch Ratings services began considering a cut in their ratings on Liberty Mutual debt because the deal could alter its ratios of cash to debt. Safeco’s debt would assume Liberty Mutual’s credit when the deal closess, the Associated Press noted.

Safeco, based in Seattle, postponed its scheduled May 7 annual meeting because of the proposed transaction. It was advised by Morgan Stanley & Co. and Skadden, Arps, Slae, meagher & Flom LLP, it said.

A year ago, Liberty Mutual acquired Ohio Casualty Corp. for $2.64 billion.

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