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Nationwide to buy Harleysville Group for $760 million

Nationwide Mutual Insurance Co. has agreed to pay $760 million for smaller rival Harleysville Group Inc. to expand its property- and casualty-insurance business on the East Coast and in the Midwest, the companies announced Thursday.

Nationwide Mutual Insurance Co. has agreed to pay $760 million for smaller rival Harleysville Group Inc. to expand its property- and casualty-insurance business on the East Coast and in the Midwest, the companies announced Thursday.

The price per share is more than double the price of Harleysville Group stock last week, before rumors of an imminent deal started. The shares soared $27.04 Thursday, up 86 percent, to close at $58.56 on Nasdaq.

The deal comes as the U.S. insurance industry, especially east of the Mississippi River, is grappling with one of its worst years from weather-related catastrophic losses, including floods and tornadoes.

Harleysville, based in the Montgomery County town of the same name, specializes in insurance for small- and mid-size businesses. It had its highest-ever weather-related losses in the second quarter of this year, president and chief executive officer Michael Browne told investors last month, but he said the sale was unrelated.

"It has nothing to do with that. This is based on long-term strategy both for Harleysville and Nationwide. For us at Harleysville, this is an opportunity to grow," he said.

Nationwide, based in Columbus, Ohio, wanted access to Harleysville's relationships with 1,300 independent insurance agencies in 32 states, each of which represents multiple insurance companies.

The addition of Harleysville would give Nationwide a national footprint in that market, which it entered with the 1998 purchase of Allied Insurance. The independent-agency market is distinct from the captive market of insurance agents who represent just one company.

The sale of the 96-year-old Harleysville Mutual Insurance Co., which owns 54 percent of the publicly traded Harleysville Group, follows the departure of Harleysville National Bank's headquarters from its hometown after its sale to First Niagara Financial Group Inc. last year.

Browne said the differences in the situations at Harleysville Group and Harleysville National "couldn't be more stark. Harleysville National was in a distressed situation. The first thing they did is they changed the brand, and then they moved the employees."

Nationwide plans to maintain the Harleysville Mutual office in Harleysville, where nearly 900 people work, and likely will expand employment there, Nationwide chief executive officer Steve Rasmussen said.

"We're very committed to it because we don't have a footprint in this part of the world. We need human capital to grow here. This is a very talented workforce here," Rasmussen said.

Bob Connor, who owns the Mints Insurance Agency in Millville, N.J., which has been selling Harleysville insurance since the 1940s or '50s, said his initial reaction to the deal was positive.

The big insurance companies put significant effort into selling directly to customers, but "they still seem to come back to the independent-agency system as a viable marketing tool," Connor said.

Under the deal, which requires regulatory, shareholder, and policyholder approval, Harleysville Mutual policyholders will become Nationwide Mutual policyholders but will not be paid for their stake in the company.

David Schiff, editor of Schiff's Insurance Observer, a newsletter, suggested the sale could face a legal challenge by Harleysville Mutual policyholders. Since Harleysville Group was formed in 1979 as a subsidiary of Harleysville Mutual, assets have been siphoned from the mutual company to the subsidiary without adequate compensation, he said.

If the deal is approved and closes early next year as expected, Browne will become president and chief operating officer of the Harleysville operation, the companies said.