LAUDERDALE LAKES, Fla. ( TheStreet) -- 21st Century Holding ( TCHC) shares were surging on a spike in trading volume Tuesday on word that Homeowners Choice ( HCII) was interested in a business combination.

Homeowners Choice said in a letter to 21st Century's board that it is proposing an offer of $1 in cash and 0.5 share of Homeowners Choice common stock for each share of 21st Century common stock. Based upon Homeowners Choice's Oct. 9 closing price of $8.60, the proposed offer values 21st Century shares at $5.30 a share, a premium of roughly 36% over 21st Century's Oct. 9 closing price.

"We believe a combination of the two companies would create a premier Florida-based insurance company mutually benefiting our companies, shareholders and employees while creating an entity stronger and better able to pursue growth," Homeowners Choice Chairman Paresh Patel wrote in the letter to 21st Century's board.

21st Century shares were jumping by 81 cents, or 20.4%, to $4.79. More than 53,000 shares changed hands in by late morning, compared to the stock's 50-day average daily volume of 25,000, according to the Nasdaq.

21st Century has a 6.91 million-share float with a short interest float of only 0.6% as of Sept. 10, according to Yahoo! Finance. More than 13% of the company's shares are held by insiders with another 30% owned by institutions.

Read more about today's high-volume stocks in earlier "Pump Up the Volume" posts.

-- Written by Robert Holmes in New York.