A surety business built in large part through M&A activity is set for further inorganic expansion.

With its April 15 agreement to acquire the global surety and credit reinsurance operations  of AmTrust Financial Services Inc., Liberty Mutual Holding Co. Inc. would rival, if not surpass, Travelers Cos. Inc. as the largest writer of U.S. surety business. In so doing, the deal could disrupt a status quo that has seen Travelers and Liberty Mutual rank No. 1 and No. 2, respectively, in the domestic surety market in each of the past 11 years after the latter's 2008 acquisition of Safeco Corp. significantly expanded its presence.

The businesses to be sold include AmTrust Surety, a provider of contract, commercial and subdivision bonds primarily in the western U.S., along with Spain- and Latin America-focused surety provider AmTrust Insurance Spain. Liberty Mutual would also acquire NV Nationale Borg-Maatschappu, which provides surety, worker disability and home purchase bonds in the Netherlands and Belgium, as well as Nationale Borg Reinsurance NV, a global provider of surety, trade credit and political risk reinsurance.

AmTrust bought two components of AmTrust Surety, Developers Surety & Indemnity Co. and Indemnity Co. of California, as part of its January 2014 acquisition of Irvine, Calif.-based Insco Dico Group. Its ownership of the Nationale Borg companies was shorter lived: AmTrust completed its acquisition of that group in May 2016.

S&P Global Market Intelligence valued those two acquisitions at $88.7 million and $179.7 million, respectively. Terms of the latest transaction, as well as the identities of the specific U.S. entities being sold, were not disclosed.

AmTrust's U.S. property and casualty subsidiaries generated $78.8 million in surety premiums on a direct basis in 2018. The companies that market products under the AmTrust Surety name — Developers Surety and presumably its Indemnity Co. of California subsidiary, CorePointe Insurance Co. and Wesco Insurance Co. — accounted for $73.5 million of that total. AmTrust's First Nonprofit Insurance Co. and Security National Insurance Co. produced the balance of the group's U.S. surety premiums.

Liberty Mutual's considerably larger U.S. surety operations had $815.6 million in surety business on a direct basis in 2018, up 4.3% year over year. Travelers led the U.S. P&C industry with surety premiums of $887.7 million, which marked growth of 7.3% from 2017. On a pro forma basis, the combination of Liberty Mutual's existing operations and AmTrust Surety as previously described would push the 2018 tally to $889.2 million.

Liberty Mutual ranked as the No. 6 U.S. surety writer in 2006 with direct premiums written of $260.4 million but would then embark on a series of transactions to boost its position. A year later, the company closed on the acquisition of Ohio Casualty Corp., a top 25 surety writer. The business accelerated dramatically in 2008 when Liberty Mutual closed the deal for Safeco, which had ranked behind only Travelers and Zurich American Insurance Co. in the U.S. surety market at the time. The combined group's surety premiums hit $832.8 million in 2008 before adverse economic conditions took their toll on business volume in 2009.

In the following years Liberty Mutual's surety premiums held relatively steady on an annual basis in the low-to-mid $700 million range. The company's 2017 acquisition of Ironshore Inc. was responsible for the vast majority of the 4.1% year-over-year U.S. surety business growth Liberty Mutual generated.

A No. 1 ranking is by no means assured for Liberty Mutual after the AmTrust transactions. An extrapolation of 2019 premium volumes based on variances in the three-year compound annual growth rates for Travelers, Liberty Mutual and AmTrust Surety suggests the gap between Liberty Mutual and Travelers will narrow, but the latter may remain ahead. Certain smaller providers, most notably Berkshire Hathaway Inc.'s Berkshire Hathaway Specialty Insurance Co. and Argo Group International Holdings Ltd.'s Argonaut Insurance Co., have been rapidly growing share in recent years albeit from small bases.

But growing surety premium is just one likely outcome from the transaction for a group with aspirations of becoming a top-three commercial lines insurer and reinsurer globally. There could be indirect benefits as well, as Liberty Mutual increasingly seeks to cross-sell traditional commercial lines coverages to contractors purchasing surety bonds.