The ability to use cash for investments is one of the reasons executives of American Financial Group gave for paying $250 million for some former Liberty Mutual workers compensation units last week.

The acquired entities—Lakeland, Fla.-based Summit Holdings Southeast Inc. and its related companies—sell workers comp in the Southeast, writing premiums of roughly $540 million.

During a conference call Thursday, AFG Co-CEO Carl Lindner III noted that Summit’s Southeast presence (in Florida, in particular) complements his company’s existing workers comp specialty companies—Republic Indemnity, which is focused in California, and Strategic Comp, a regionally focused comp writer in several states.

Following the transaction, Summit will continue to operate under the Summit brand as a member of AFG’s Great American Insurance Group.

The deal also “adds $1 billion of cash to our balance sheet, which we will put to work in our investment portfolio,” Lindner added during Thursday’s conference call. He noted that AFG’s in-house money manager has produced returns that outperform the industry and major indices.

In addition, the transaction also makes use of $400 million out of $900 million of excess capital that AFG reported at Sept. 30, 2013, Lindner said.

CFO Jeff Consolino explained that the reason for adding capital, noting that when Summit was a part of Liberty, it participated in an intercompany pooling arrangement (ceding premiums and losses to Liberty Mutual). That meant the Summit group did not maintain a standalone rating. The $400 million capital investment is enough to give Summit a standalone capital base appropriate for an A+ rating from Standard & Poor’s, equivalent to AFG’s other operating insurers, he said.

Highlighting another deal benefit, Lindner said, “We expect to achieve double-digit returns on capital in this business and have immediate earnings accretion.” Summit’s business is expected to generate after-tax returns of 11-12 percent over time, he said.

He went on to discuss AFG’s past ability to “skillfully manage the workers comp cycle”—growing when market conditions are right and walking away from business when it’s not possible to achieve appropriate returns.

Currently, “with pricing on the upswing” and rates adequate in the carrier’s target markets, “AFG is back to growing its workers comp business,” Lindner said.

Later in the call, Lindner said other benefits of the deal for AFG relate to Summit’s use of predictive analytics and its approach to managing healthcare claims.

Following the transaction, AFG said that Summit will continue to operate under the Summit brand as a member of AFG’s Great American Insurance Group.

Under the terms of the transaction, Cincinnati-based AFG will pay Liberty Mutual an estimated $250 million at closing. The purchase price will be subject to adjustment between signing and closing for, among other things, changes in Summit’s GAAP tangible book value.

Summit’s affiliates include Bridgefield Casualty Insurance Co. and Bridgefield Employers Insurance Co.

Lindner noted that Summit has a top-5 market position in the workers comp line in several states, including Florida, Louisiana and Mississippi, even though average premium sizes are less than $10,000 for the majority of the business.

In 2012, Summit insurance subsidiaries Bridgefield Employers and Bridgefield Casualty wrote $538 million, while Summit managed an additional $110 million on behalf of other unaffiliated entities.

Through its Great American Insurance Group, AFG sells specialized commercial property/casualty insurance products as well as annuities. Its major product lines include inland and ocean marine, workers compensation, agricultural-related products including crop insurance, executive and professional liability, fidelity and surety, collateral protection, umbrella and excess liability, excess and surplus, and commercial automobile. The group writes business in all 50 states primarily through independent agents and brokers.

With the Summit acquisition, the specialty casualty component of the business will grow from 34 percent to 41 percent, Lindner said. While specialty property will still be the biggest part of the pie, that part will shrink from 53 percent down to 47 percent, with specialty financial making up the remaining 12 percent.

Bank of America Merrill Lynch acted as financial advisor to Liberty Mutual Insurance.