Tower Group, headquartered in New York, N.Y., has announced its plans to acquire Specialty Underwriters’ Alliance for $107 million.

SUA, based in Chicago, Ill., through its subsidiary SUA Insurance Co., is a specialty property-casualty insurance company offering insurance products through independent insurance agents in niches, including construction, small business and transportation.

Tower, which offers property-casualty insurance through five subsidiaries, said the proposed transaction would strengthen its specialty business segment, establish a Midwest regional office to support continued geographical expansion, and would be “financially compelling” to stockholders of both companies, according to a statement.

Michael H. Lee, chairman and CEO of Tower Group, said acquiring SUA “enables us to raise additional capital cost effectively to support our growth initiatives.”

“It also significantly enhances our profile in the specialty business segment, an area in which we are seeing very strong opportunities for growth,” Lee said in a statement.

He added that by “fully leveraging the operating platform and distribution relationships that SUA has developed,” Tower is confident it can build on its CastlePoint specialty business, the reinsurer it purchased for more than $530 million in February.

Courtney Smith, SUA’s president and CEO, said the company is “pleased to join forces with Tower,” noting the company’s track record in acquisitions and “providing meaningful value to shareholders.”

“After a careful review of our strategic alternatives, our board has concluded that this transaction provides our shareholders with the best opportunity to enhance shareholders’ value,” Smith said.

“In addition, our affiliation with Tower will allow us to improve our profitability and take advantage of the current market opportunities” from Tower’s A- rating by A.M. Best Co. and its strong capitalization,” Smith added.

Under the terms of that agreement, SUA shareholders would receive Tower common stock equal to $6.72 per SUA share based on the June 19 closing stock price for Tower of $24.00.

Tower anticipates the transaction to close at year-end 2009, subject to customary closing conditions, including the approval by SUA shareholders, as well as regulatory approvals, the company said.