Fremont to Acquire Industrial Indemnity

Fremont General Corp. of Santa Monica, one of the nation’s largest workers’ compensation insurers, said Monday that it will buy San Francisco-based Industrial Indemnity Holdings from Talegen Holdings Inc., a Xerox Corp. subsidiary, for $444 million in cash and assumed debt.

James A. McIntyre, chairman and chief executive of Fremont General, said the purchase of Industrial Indemnity will broaden his company’s reach, which had been concentrated in California and Illinois.

“We believe that their strong presence and reputation in the Western United States will complement our expanding national franchise in a very meaningful way,” McIntyre said.

Industrial Indemnity is expected to boost Fremont’s total revenue by 41% to an estimated $1.2 billion next year, said Wayne R. Bailey, executive vice president and chief financial officer of Fremont General. Property and casualty premiums are expected to grow to $780 million from this year’s expected $480 million.

McIntyre predicted that the combined companies will be able to operate more efficiently and that the acquisition will boost earnings, beginning next year. The transaction, which is subject to regulatory approvals, is expected to close by the end of this year.

News of the deal sent Fremont shares soaring $2.75 to close at $31.375 on the New York Stock Exchange.

Fremont General’s insurance operations specialize in workers’ compensation insurance. The company also provides medical malpractice insurance. Fremont General also has a smaller financial services operation, which includes commercial and residential real estate lending and commercial financing.

“Looking at it strategically and financially, it’s probably good on both counts,” said Jay Cohen, an analyst with Merrill Lynch & Co.

The acquisition would give Fremont access to states including Alaska, Texas and Utah, where it doesn’t do business now. In addition, it would cement Fremont’s place in Arizona, where it expects to become the biggest private provider of workers’ compensation insurance.

The purchase would also augment Fremont’s California business at a time when the workers’ compensation insurance industry in the state is “showing some signs of improvement,” Cohen said.

The workers’ comp insurance market in California has been roiled by aggressive price competition, said Jim Little, president of Fremont Compensation Insurance Group, Fremont General’s insurance subsidiary. But prices have firmed recently, and the combination of Fremont and Industrial Indemnity “should enhance that process,” he said.

The sale of Industrial Indemnity for $365 million in cash and $79 million in assumed debt is part of Xerox’s plan to get out of the insurance and financial services business so it can concentrate on its document-processing machines.

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Bloomberg News contributed to this report.