CRM Holdings Ltd., a provider of fee-based management services and reinsurance to self-insured workers’ compensation groups, announced that it has signed a stock purchase agreement to acquire privately-held Embarcadero Insurance Holdings Inc. for approximately $45 million in cash.
The deal is expected to close by the end of 2006 and will expand CRM’s workers’ compensation insurance business.
Under the terms of the Agreement, CRM USA Holdings will acquire all of the outstanding shares of Embarcadero and, upon consummation of the transactions contemplated by the agreement, Embarcadero will be become a wholly-owned subsidiary of CRM USA Holdings.
Embarcadero, through its wholly-owned subsidiary, Majestic Insurance Co., writes workers’ compensation insurance for medium to large size businesses. Majestic is a California domiciled insurance company licensed in 15 states, and presently operates in California, Arizona, Alaska, Nevada, Oregon and Washington. In June 2006, Majestic was rated “B++” with a positive outlook by A.M. Best, according to the company.
Majestic began operations in 1986 and since then has grown its workers’ compensation net earned premiums to $71.3 million in 2005. Majestic’s 5-year average combined ratio was 98.6 percent through 2005. EIH had total assets at Dec. 31, 2005, of $211 million and 2005 net income of $5.2 million.
The aggregate purchase price to be paid in the acquisition is the consolidated book value of Embarcadero at the time of closing, which is estimated as approximately $45 million, and will be paid in cash. Of this aggregate purchase price, $4 million will be held in escrow for up to 18 months following the closing to cover potential indemnification claims for breaches of certain representations and warranties, and an additional $3.2 million will be held in escrow for five years to cover indemnification claims by CRM USA Holdings with respect to reserves for losses and loss adjustment expenses.
The agreement is subject to customary closing conditions including regulatory approval. The acquisition is expected to close by the end of 2006, but unanticipated factors and events, including if the closing conditions specified in the agreement are not satisfied or waived, may delay the closing of the acquisition or cause the acquisition not to close.
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