Bermuda-based Ariel Holdings Ltd.'s subsidiary Valiant Insurance Group Inc. is set to be acquired by First Mercury Insurance Company for $55 million, it was announced on Wednesday.

First Mercury, a subsidiary of First Mercury Financial Corporation (FMF), is a service provider of specialty liability insurance. Valiant Insurance is an insurance holding company. All of the entities are based in the US.

First Mercury has entered into a definitive agreement to acquire Valiant and under the terms of the agreement, Ariel has agreed to provide FMF with full protection related to the run-off of Valiant's net loss and loss adjustment expense reserves and unearned premium reserves reflected on the closing date balance sheet. FMF will use cash from its insurance subsidiaries to finance the transaction.

The components of Valiant's existing underwriting platform to be retained by First Mercury will include primary and excess casualty, professional and management liability and marine classes of business. First Mercury also intends to retain Valiant's underwriting teams that produce these classes of business. Classes of Valiant business that are not consistent with First Mercury's specialty niche underwriting focus will be discontinued.

The Bank of America Corporation will act as financial advisor, while Simpson Thacher & Bartlett LLP and McDermott Will & Emery LLP will act as legal advisers to First Mercury. Aon Benfield Securities Inc. and Katten Muchin Rosenman LLP will act as financial and legal advisers to Ariel, respectively.

The deal is expected to close in the fourth quarter of 2010.