Philly insurer: Chicago owner offers better deal, for $228M

"We didn't have to merge," but the sale of PMA Capital Corp., Blue Bell, to Chicago-based Old Republic International Corp. will be better for shareholders "than if we stood alone," PMA boss Vincent Donnelly told me this morning.

Half of PMA's 1,300 workers are based in Blue Bell and other Pennsylvania offices, and Donnelly expects most will keep their jobs, including him and his management team. With $4 billion in yearly sales, Old Republic is about 10 times PMA's size.

Donnelly expects his company will stay in business as an independent unit of Old Republic. Spun off by the once-powerful Pennsylvania Manufacturers' Association, the business lobbying group, in the 1990s, PMA's attempts to diversify its businesses brought losses in four of the six years between 2001-08. Donnelly, who previously headed the workers' comp business, has sold other assets like PMA Reinsurance since taking the top job in 2003.

As the insurance arm of the manufacturers' lobby, PMA in the early 1900s pioneered workers' compensation insurance in the state, ensuring hurt workers got paid something, while also immunizing their bosses from more expensive personal-injury lawsuits.

Donnelly told me PMA is now Pennsylvania's third-largest workers' comp carrier, with "about a 6 percent market share," trailing the state-owned State Workers' Insurance Fund and Liberty Mutual. Pennsylvania comp accounts for almost one-third of the company's business.

Old Republic agreed to pay stock worth around $7 a share, or $228 million total, for PMA. For shareholders led by 10% owner Donald Smith & Co., New York, that's a little better than PMA's average 2010 price of $6.40, but it's below this year's May 12 high of $7.54, and well below the stock's alltime high of $26 back in 2002. The deal needs state regulatory approval, which Donnelly expects before October. Old Republic boss A.C. Zucaro wasn't immediately available for comment.