Homeowners Choice Backs Off Attempt to Acquire 21st Century Holding

Florida domestic insurer, Homeowners Choice Inc., said for now it has ended its attempt to merge with fellow domestic insurer, 21st Century Holding Co.

Paresh Patel, chairman of the board of Homeowners Choice, said in a statement that the company will not launch a hostile acquisition effort but "may do so at a later date."

Clearwater, Fla.-based Homeowners Choice (NASDAQ: HCII) offered $1 in cash and a half-share of Homeowners Choice common stock for each share of 21st Century Holding (NASDAQ: TCHC) stock. The offer amounted to about $40 million assuming a price of $8 for a Homeowners Choice share and just more than 8 million shares of 21st Century Holding stock (BestWire, Oct. 13, 2009).

About two weeks after the offer was made, 21st Century rejected it, calling it "wholly inadequate" (BestWire, Oct. 30, 2009).

Patel said Homeowners Choice did not undervalue 21st Century, as the insurer has been "trading below book value for more than a year," he said. The share price of 21st Century jumped during the offer but it never reached the offer price. This, said Patel, "is a strong indication that the market viewed our offer as fair, if not generous."

"Frankly, our track record indicates we could add substantial value to 21st Century's assets," said Patel.

21st Century reported a third-quarter net loss of about $4 million, compared with a net loss of $1.5 million during the third quarter in 2008. The company said its results were affected by increased reinsurance costs, less earned premium from mitigation credits and lower total revenues as a result of the company's decision not to write new homeowners insurance policies during wind season in Florida. The insurer's subsidiaries write commercial general liability, homeowners, flood, automobile and commercial auto in Florida.

Homeowners Choice releases its earnings on Nov. 10. The company, through its subsidiaries, offers homeowners, condominium and tenants insurance. Patel said Homeowners Choice expects to profit during the third and fourth quarters. The company has turned a profit for eight straight quarters, he added.

Recently, Homeowners Choice was selected by the Florida Department of Financial Services as the replacement insurer for American Keystone Insurance Co., which was ordered into liquidation and placed into receivership. Homeowners Choice also was authorized by regulators to assume 60,000 policies from Citizens Property Insurance Corp. as part of the state's continued "take-out" program to reduce the exposure of the last-resort, state-run insurer (BestWire, Oct. 30, 2009).

In afternoon trading on Nov. 6, shares of Homeowners Choice stock were selling at $8.27, down about 2.7% from the previous close. Shares of 21st Century Holding stock were selling at $4.01, down about 1.7% from the previous close.

The top five writers of homeowners multiperil in Florida in 2008, according to BestLink, based on direct premiums written, were: State Farm Group, with a 17.7% market share; Citizens Property Insurance Corp., with 16.2%; Universal P&C Insurance Co., with 7.2%; USAA Group, with 5.1%; and Tower Hill Group, with 4.5%.

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)

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