Hilltop Holdings Inc. to Acquire SWS Group

Hilltop Holdings Inc., a Dallas-based monetary holding business with interests in fiscal companies and insurance operations, announced an agreement to acquire SWS Group Inc., a holding firm that offers investment and financial solutions by means of subsidiaries. SWS Group is also headquartered in Dallas.

The agreement was unanimously accredited by the boards of directors of the 2 companies. The merger is topic regulatory approvals and approval of the shareholders of SWS, and is anticipated shut just before the finish of the yr.

The mixed broker/dealer will give a broad variety of investment banking and connected fiscal companies to personal, corporate and institutional traders, broker/dealers, government entities and economic intermediaries.

In 2011, Hilltop invested $ 50 million in SWS in the kind of a senior unsecured loan. Hilltop Chairman Gerald J. Ford joined the board of directors of SWS and Hilltop President and Chief Executive Officer Jeremy B. Ford became a non-voting observer to the SWS board.

In conjunction with Hilltop’s investment in SWS, Hilltop was issued a warrant to acquire 8,695,652 frequent shares of SWS at an exercise price of $ 5.75 per share. Hilltop presently beneficially owns 24 percent of SWS frequent stock, inclusive of the warrant.

Stephens Inc. acted as fiscal advisor to Hilltop, and Wachtell, Lipton, Rosen & Katz acted as legal advisor. Sandler O’Neill & Partners, L.P. acted as financial advisor to the Unique Committee of the SWS Board of Directors, and Davis Polk & Wardwell LLP acted as legal advisor.

By means of its wholly owned subsidiary, PlainsCapital Corp., a regional commercial banking franchise, Hilltop Holdings has 3 operating subsidiaries: PlainsCapital Bank, PrimeLending, and 1st Southwest. Hilltop subsidiary National Lloyds Corp. offers property and casualty insurance through 2 insurance coverage firms, Nationwide Lloyds Insurance coverage Co. and American Summit Insurance Co.

National Lloyds, American Summit

In a separate action, ratings agency A.M. Best revised the outlook to unfavorable from steady and affirmed the financial power rating (FSR) of A (Excellent) and issuer credit score rating (ICR) of “a” of National Lloyds Insurance Co.

Furthermore, A.M. Greatest affirmed the FSR of A (Outstanding) and ICR of “a” of National Lloyds’ affiliate, American Summit Insurance Co.

The ratings outlook for each Waco, Texas-based mostly insurers is secure.

The revised outlook for Nationwide Lloyds’ ratings displays its volatile working benefits mostly due to continuation of adverse underwriting functionality, as nicely as its declining threat-adjusted capitalization trend in latest many years.

The unfavorable underwriting efficiency was driven by a variety of frequent and significant climate-associated occasions, particularly tornado, hail and windstorm losses that occurred in latest many years. As a consequence, Nationwide Lloyds has reported sizable underwriting losses for the duration of the last 3 many years by way of 2013.

In response, management has elevated rates, tightened underwriting recommendations non-renewed unprofitable organization and diminished exposure in geographical regions that are more catastrophe-susceptible. However, as the bulk of its enterprise is conducted in Texas, National Lloyds’ all round benefits will continue to be exposed to frequent and severe climate-relevant occasions as effectively as economic, judicial and regulatory concerns.

The affirmation of Nationwide Lloyds’ ratings recognizes its sufficient risk-adjusted capitalization, conservative investment method and regional industry experience within its niche marketplace of individual home insurance coverage.

Additionally, despite the unfavorable underwriting performance, Nationwide Lloyds’ net earnings earnings have been constructive more than the final 5 many years driven by other earnings, net investment earnings and capital gains.

Nationwide Lloyds advantages from the monetary versatility of its immediate parent holding organization, Nationwide Lloyds Corp. (formally acknowledged as NLASCO Inc.), which was evidenced in 2012 by its explicit assistance in the form of a capital contribution to offset underwriting losses.

The ratings may be downgraded if National Lloyds has a continuation of adverse underwriting final results and declining danger-adjusted capitalization. Removal of the damaging outlook is contingent upon Nationwide Lloyds’ ability to reverse its adverse underwriting performance and enhance its total risk-adjusted capitalization.

The ratings of American Summit acknowledge its favorable threat-adjusted capitalization, conservative investment approach and usually optimistic net revenue earnings primarily driven by a steady stream of net investment revenue, other revenue and capital gains more than the final 5 years.

In addition, American Summit maintains moderate underwriting leverage measures and favorable balance sheet liquidity. American Summit has reported generally favorable loss reserve improvement on the 2 an accident and calendar many years basis in most years.

These positive rating aspects are partially offset by American Summit’s various underwriting performance that resulted in underwriting losses in 3 of the last 5 years.

The unfavorable underwriting functionality was driven by increased weather-connected events and elevated losses from an affiliated quota share reinsurance agreement with National Lloyds.

American Summit maintains a prudent catastrophe reinsurance program in conjunction with National Lloyds to mitigate losses connected with severe climate-connected catastrophe events.

American Summit’s merchandise offerings are relatively constrained as it is primarily a supplier of insurance for the mobile house industry with most of its company performed in Arizona.

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