US insurers Allstate has moved to grow its automotive operations with the $4 billion acquisition of National General Holdings.
National General, headquartered in New York City, is a specialty personal lines insurer serving customers through a network of approximately 42,300 independent agents for property-casualty products. National General traces its roots to 1939, has a financial strength rating of A- (excellent) from A.M. Best, and provides personal and commercial automobile, homeowners, umbrella, recreational vehicle, motorcycle, lender-placed, supplemental health and other niche insurance products. Auto insurance represents approximately 60% of premium with a significant presence in the non-standard auto market. Its property-casualty business was built through a combination of organic growth and opportunistic acquisitions. National General earns attractive margins and generated operating return on average equity in excess of 16% in 2019, with net income of $314 million, up 79% from the prior year. Gross premiums written in 2019 were $5.6 billion.
“Acquiring National General accelerates Allstate’s strategy to increase market share in personal property-liability and significantly expands our independent agent distribution,” said Tom Wilson, (pic) Chair, President and CEO. “The acquisition increases personal lines premiums by $4.0 billion and market share by over 1 percentage point to 10%. National General’s business and technology platforms will be utilised to further strengthen Allstate’s existing independent agent businesses. The transaction will be accretive to adjusted net income earnings per share and return on equity beginning in the first year.”
Under the terms of the deal National General shareholders will receive $32.00 per share in cash from Allstate, plus closing dividends expected to be $2.50 per share, providing $34.50 in total value per share. Allstate will fund the share purchase by deploying $2.2 billion in combined cash resources and, subject to market conditions, issuing $1.5 billion of new senior debt. Allstate said it expects to maintain its current share repurchase program.
National General’s board of directors has approved the transaction, which includes customary terms and conditions, including a breakup fee of $132.5 million. A voting agreement has also been signed with entities controlling 40% of National General’s common shares to vote for the transaction.
“National General’s operating expertise has enabled us to serve customers and independent agents well as we have grown both organically and through acquisition,” said Barry Karfunkel, Co-Chairman and CEO of the New York-based insurer. “We are excited about combining our team’s expertise and commitment with Allstate to become a top-five personal lines carrier for independent agents while offering a broader array of products. National General’s shareholders are also benefiting by unlocking the value created over the last decade.”
MSD Capital, which owns approximately 7.4% of National General’s outstanding common shares, has thrown its support behind the deal.
“As proud shareholders since 2013, we support the decision of National General’s board of directors to move forward with this strategic transaction,” said John Phelan, Managing Partner and Co-Founder of MSD Capital, and MSD Partners.