Mutual fund company T. Rowe Price Associates Inc. will not offer its significant stock holdings for sale in the proposed buyout of Richfield specialty insurer National Interstate Corp. by Cincinnati-based American Financial Group, saying it is “concerned” and “appalled” with the deal.

“Having analyzed this transaction carefully, we note that we have rarely come away with concerns as substantial as those we have identified here,” T. Rowe Price said in a filing Tuesday with the Securities and Exchange Commission. The letter is dated Monday.

“In short, we are quite troubled about both the process the National Interstate board undertook to evaluate the transaction as well as the consideration offered,” the letter said.

Baltimore-based T. Rowe Price said it owns 1.57 million shares, or about 8 percent of outstanding shares. That would make it National Interstate’s fourth-largest shareholder, based on latest available SEC filings.

AFG said it was aware of the T. Rowe Price letter but declined comment. National Interstate did not return a telephone call seeking comment.

Four of National Interstate’s 10 board members have a “direct conflict” because they are employed by AFG, the company letter said. Two other board members are “less directly conflicted” but are not independent, T. Rowe Price said.

T. Rowe Price said it would have expected National Interstate’s board to mitigate conflicts but that it did not do so.

The company said it was “particularly appalled” that National Interstate did not get a fairness opinion on what AFG called its “best and final” $30-per-share offer.

“Our concerns are so strong about the lapses in basic standards of corporate governance evident in this situation that we will file this letter with the U.S. Securities and Exchange Commission in order to make public our opinion,” the T. Rowe Price letter said.

National Interstate last week said it will not comment or offer an opinion on AFG’s $30-per-share offer. AFG said its tender offer expires March 6.

American Financial Group is National Interstate’s largest shareholder, owning about 52 percent of the company. It said it wants to buy up all remaining shares of National Interstate. AFG initially offered $28 per share.

The second-largest shareholder is National Interstate itself. The third-largest shareholder is company founder Alan Spachman, who remains a director of the company and also is publicly opposing the current buyout offer and process.

National Interstate reported on Tuesday it had net income of nearly $8.6 million, or 43 cents per share, on gross premiums written of $179.3 million for its fourth quarter.

A year ago, it had net income of $8.3 million, or 42 cents per share, on gross premiums written of $156.8 million.

For the full year, National Interstate said it had net income of $17.6 million, or 89 cents per share, on gross premiums written of $631.9 million. For fiscal 2012, it had net income of $34.3 million, or $1.75 per share, on gross premiums written of $573.5 million.

Shares rose 21 cents to $30.17, which may indicate that shareholders expect a higher buyout offer than what AFG said is its best and final offer.

National Interstate reported fourth-quarter finances after the stock market closed Tuesday. It reported preliminary fourth quarter and fiscal year results at the end of January.

Jim Mackinnon can be reached at 330-996-3544 or