Trustmark reportedly exploring insurance sale, enticed by large payday

As Trustmark Corp. reportedly explores a sale of its insurance unit, the usual suspects are likely buyers.

Trustmark is reportedly working with an adviser to sell its insurance business, according to a report from Insurance Insider. Potential buyers are Arthur J. Gallagher & Co., which announced acquisitions of Cadence Insurance Inc. and Eastern Bankshares Inc.'s insurance businesses in 2023, or Stonepoint Capital LLC, which purchased the remaining 80% stake in Truist Insurance Holdings LLC in February, Piper Sandler analysts Stephen Scouten and Graham Dick said in interviews.

"I think that would make some sense given how active they've been," Scouten said.

The report that Trustmark is exploring a sale of its insurance unit marks a change in tune for the company, which expressed on multiple recent earnings calls that it has no interest in selling the business. However, the company has likely been enticed by the potential for a large payday from a sale, the Piper Sandler analysts wrote in a note.

"Apparently the multiples paid on these businesses has become too much for them to pass up," they wrote.

Trustmark could fetch a price between $280 million and $330 million for the business given the revenue and price-to-equity multiples Cadence Bank, Eastern Bankshares and Truist Financial Corp. received, Scouten and Dick estimated.

In the company's earnings calls for both the third and fourth quarters of 2023, Trustmark President and CEO Duane Dewey suggested a sale was unlikely given the unit's stable growth and a high return on tangible common equity.

"We continue to monitor and evaluate, but at this point in time, we really like the insurance business," Dewey said during the company's earnings call for the third quarter of 2023. The insurance business contributed $57 million in revenue in 2023, according to the analyst note.

Executives on the earnings calls had also expressed skepticism at the possible restructuring of the company's bond portfolio. But now that Trustmark is exploring a sale, the company may use the proceeds to restructure its bond portfolio after all, Scouten and Dick wrote.

The company could also use the gains for share repurchases as a $50 million authorization is already outstanding, they added. With the company's stock at just 1.25x tangible book value per share, offloading a high-multiple business and using the proceeds to repurchase shares at a much lower multiple would be an attractive trade, the analysts wrote.

"Ultimately, the market reaction will be dependent upon the financial upside created from this potential sale, but given the bank's seemingly measured approach to this pursuit, we imagine the upside will be to the market's liking," they wrote.

The reported sale comes as a number of other banks with large insurance businesses have taken advantage of high insurance multiples and sold their units for hefty prices.