Tower Group Inc. announced yesterday that it had agreed to buy the personal lines division of Bermuda-domiciled OneBeacon Insurance Group in a cash deal worth approximately $180 million.

The transaction involves the acquisition of two insurance companies, two management companies, certain renewal rights and other associated assets.

The acquired insurance companies write approximately $250 million of annual premiums, and the acquired management companies are attorneys-in-fact that manage approximately $250 million in annual premium written through two reciprocal insurance companies.

Tower will write and manage the private passenger automobile, homeowners and package policies through the companies currently issuing these policies and combine its existing personal lines operations with the business being acquired.

Michael Lee, president and CEO of Tower, said: "This transaction provides us with a unique opportunity to add a very high quality franchise to Tower's group of companies.

"The transaction is consistent with our long term strategic plan to expand our diversified platform through acquisitions by strengthening our personal lines product offering, generating additional fee income from the management of the reciprocals and delivering greater value to our producers and customers."

AM Best Co. has commented that the financial strength ratings (FSR) of A- (excellent) and issuer credit ratings (ICR) of 'a-' of Tower Group Companies, its pooled members and CastlePoint Reinsurance Company Ltd. (Bermuda) are unchanged.

Best also has commented that the FSR of B+ (good) and ICR of 'bbb-' of Tower's recently acquired CastlePoint National Insurance Company remain under review with positive implications, pending regulatory approval of its inclusion into the Tower Group Companies pool.

Additionally, the ratings agency has commented that the ICR of 'bbb-' of the publicly-traded holding company, Tower Group Inc., also is unchanged following the announcement that Tower entered into the agreement to buy the personal lines business of OneBeacon.

Under the terms of the agreement, Tower would pay $78 million cash to acquire Massachusetts Homeland Insurance Company, York Insurance Company of Maine, New Jersey Skylands Management LLC and Adirondack AIF LLC.

As part of the transaction, Tower would purchase approximately $103 million of surplus notes currently held by OneBeacon used to support the capitalisation of two reciprocals, New Jersey Skylands Insurance Association and its wholly-owned subsidiary, New Jersey Skylands Insurance Company and also Adirondack Insurance Exchange.

The deal is expected to close at the end of second quarter 2010. Tower intends to provide affiliated reinsurance support to Mass Homeland and York in order for the acquired companies to receive the ratings of the Tower Group Companies pool.