Bermuda reinsurer Ariel Holdings Ltd. is set to sell Valiant Insurance Group Inc. for about $55 million to First Mercury Financial Corp., the holding company for speciality commercial insurer First Mercury Insurance Co.

First Mercury said it would use cash from its insurance subsidiaries to complete the transaction and under the terms of the agreement Ariel has agreed to provide First Mercury 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.

First Mercury said it would retain Valiant's existing underwriting platforms and the underwriting teams, including primary and excess casualty, professional and management liability and marine classes of business.

However, classes of Valiant business that are not consistent with First Mercury's specialty niche underwriting focus will be discontinued, the company said.

Gary Dubois, president and CEO of Valiant, and Scott Bayer, senior vice-president of Valiant, will join First Mercury.

Ted Camp, chief underwriting officer of First Mercury, said the move will open the door for his company, an excess and surplus lines writer, to enter the admitted market, according to a report in BestWeek.

He said that First Mercury would now be able to write insurance for contractors working on municipal projects, who require the coverage on admitted paper, as well as writing marine business.

"Valiant comes with 47 admitted states, fully licensed and approved," Mr. Camp said. "We view this as a new marketing ability to write certain classes of business that had previously been unavailable to us."

Through May 31, 2010, Valiant had about $34 million in gross written premiums. In the 12 months following the closing of the transaction, First Mercury reckons that Valiant will write about $50 million to $60 million of gross written premiums. The company added it would reinsure about 66 percent of Valiant's anticipated gross written premiums going forward.

The acquisition is expected to be accretive to First Mercury's book value per share immediately at closing. First Mercury does not expect the transaction to have a material effect on 2010 earnings and expects the transaction to be modestly accretive to earnings in 2011.

In 2007, Ariel Holdings, via its wholly-owned subsidiary Valiant Insurance Group Inc., acquired Valiant Insurance Co. as a shell company. In the second half of 2008, Valiant Insurance Group formed a wholly-owned subsidiary, Valiant Specialty Insurance Co. to write business on an excess and surplus lines basis nationwide. Last September, Valiant Insurance Group expanded its New York headquarters by moving to larger offices and hiring additional staff, in addition to opening a new office in Atlanta.