UPDATE 3-ProAssurance buys rival for $233 mln, eyes Texas growth

Wed Sep 1, 2010 12:46pm EDT

* ProAssurance to pay $32.50/shr; a 24 pct premium

* Says acquisition to boost presence in Texas

* Deal to add to ProAssurance's 2011 adj earnings

* American Physicians shares touch life high (Adds byline, details, updates shares, trading volumes)

By Jochelle Mendonca

BANGALORE, Sept 1 (Reuters) - Medical professional liability insurer ProAssurance Corp (PRA.N) said it would buy smaller rival American Physicians Service Group (AMPH.O) for $233 million in cash to expand in the fast-growing Texas market and adjoining states.

Cash-rich property and casualty insurers are expected to go on a buying spree as they try to compensate for flagging premium growth and pricing pressures amid strong competition. [ID:nSGE6660A2]

ProAssurance will pay $32.50 a share, a 24 percent premium to Austin, Texas-based American Physicians Service's Tuesday close.

"Completing this transaction will make ProAssurance the second-largest writer of medical professional liability business in Texas, one of the fastest, if not the fastest, growing physician markets in the country," ProAssurance CEO Stancil Starnes said on a conference call with analysts.

Stifel Nicolaus analyst Michael Paisan noted Texas is the only state to have passed tort reform by constitutional amendment.

"It would be very difficult to overturn (that) even if the environment were to change," he said. "So it's a good place to write this insurance."

Texas tort reform clamps down on damages that can be awarded in medical malpractice suits, making the state an attractive place for doctors to practice medicine.

Paisan added he sees modest accretion from the deal and thinks the valuation paid for American Physicians was "quite reasonable".

Birmingham, Alabama-based ProAssurance said the acquisition will add to its 2011 earnings, before one-time charges.

ProAssurance, which has $334.2 million in cash and short-term investments, said it could afford to buy back shares and fund the acquisition with its own cash.

The transaction, which has been approved by American Physicians' board, should close this year, ProAssurance said.

ProAssurance is advised by Sandler O'Neill and American Physicians is advised by Macquarie Capital (USA).

American Physicians stock rose 23 percent to a life high of $32.25 on Nasdaq, with close to 600,000 shares traded, 26 times the stock's normal volume.

ProAssurance shares were up 3 percent at $54.68 on the New York Stock Exchange. (Reporting by Jochelle Mendonca in Bangalore; Editing by Anne Pallivathuckal and Ian Geoghegan)