Bold Penguin deal highlights American Family's venture fund strategy

American Family Insurance Mutual Holding Co.'s most recent deal is another example of the insurer bringing on a technology-based enterprise it once backed as a startup.

Through its funding arm, American Family was a minority investor in Bold Penguin Inc. before it agreed to buy the insurtech company. The insurer went a similar route with Networked Insights Inc. years earlier, providing venture funding as a minority investor in 2013 and then purchasing the portion of the technology company that it did not already own in December 2017.

American Family Insurance CEO-elect William Westrate in an interview said the American Family Ventures arm looks for investment opportunities "at an early stage in companies where we can get a lens into their development, a lens into their capabilities, the potential for their business and how it could impact" the insurer and the industry as a whole.

Kaenan Hertz, managing partner of Insurtech Advisors LLC, in an email said competition among legacy carriers active in the venture startup game is complicated. Venture funding captives seeking out investment and buyout opportunities on behalf of parent insurers are rare outside of the largest companies. Insurance companies can chill the investment atmosphere surrounding a startup, he said. If multiple carrier investors are involved, debate begins to break out over whether one company would be willing to give up the technology to competitors, he said.

"I would be worried that other carriers might be less willing to participate in the platform given concerns over [American Family's] ownership and ability to learn what other carriers might be doing or what risks they have an appetite for," Hertz added.

Ken Muth, an American Family spokesman, said the insurer will not have access to any proprietary data or information provided to Bold Penguin by its partners.

American Family converted into a stockholding mutual insurance company in 2016 and has been working to become a more diversified multiline insurer, partly through strategic acquisitions. The Bold Penguin and Networked Insights deals were among American Family's recent purchases aimed at enhancing digital capabilities, especially for its sales channels. Networked Insights uses advanced analytics for customers to target their buying audience and to monitor their brands on social media. At the same time that deal closed, the insurer announced the acquisition of HomeGauge, a North Carolina company that sells home inspection software.

American Family's recent deal history, including a $1.05 billion purchase of the unit that became American Family Connect Insurance Co. have contributed to a slight decline in its capital surplus through the first three quarters of 2020, S&P Global Ratings said in a Jan. 15 research note. S&P Ratings in that note affirmed its A financial strength and issuer credit rating for subsidiary American Family Mutual Insurance Co. SI.

The rating agency sees American Family's financial performance as justifying the rating despite the cost of its acquisitions.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.