A recent deal and subsequent stock offering could mean National General Holdings Corp. is getting off the sidelines after two years of relatively little deal activity in the property and casualty space.
Although historically an acquisitive company, National General had been quiet on the M&A front for its P&C business since around mid-2016. But on Nov. 13, the company said it plans to purchase Wisconsin-based National Farmers Union P&C Co. from QBE Insurance Group Ltd. in a $43 million transaction. A day later, National General announced a stock offering that later priced at $115.2 million. In a press release, the company said proceeds from the offering could be used for strategic acquisitions or supporting policy writings.
Meyer Shields, an analyst for Keefe Bruyette & Woods, said the deal signals the end of the "distractions" and integration efforts that came with National General's 2016 acquisitions.
"I think they're back in the game now," Shields said, adding that he expects deals to continue, although perhaps not at the same pace seen in 2016. That year saw National General acquire three P&C underwriters in transactions with an aggregate announced value of $507.6 million. All three of those deals were announced in the first half of 2016.
The company added the right to renew Nationwide Mutual Group nonstandard auto business later that year. The deal brought in what National General described as a "significant" book without the associated balance sheet risk.
B. Riley FBR analyst Randy Binner said the National Farmers Union deal is a "'tuck-in'" acquisition of a profitable company that adds exposure for National General in new states. He also noted that it will not be nearly as disruptive as some of the company's prior acquisitions.
"National General's platform was built to acquire companies," Binner said. "I'm sure this won't be the last acquisition."
During an Oct. 31 third-quarter earnings call, co-Chairman and CEO Barry Karfunkel said National General's approach to deals has not changed much over the years.
"We've always been a very opportunistic acquirer, and that will definitely be the case going forward," he said, according to a transcript of his remarks. "When we look at opportunities, we look for strategic opportunities that really enhance National General's capabilities or state footprint expansion, regardless as to line of business."
The deal represents National General's first serious foray into farmowners insurance, which covers structural property losses and farm-related liabilities.
National Farmers Union's business is heavily concentrated in the Midwest and Mountain West. According to data compiled by S&P Global Market Intelligence, nearly a quarter of its 2017 direct premiums written originated in North Dakota. More than 20% of its direct premiums written last year came from Colorado, while Minnesota and Montana respectively accounted for 10.9% and 10.8% of the total.
The company accounted for more than half of all of the QBE group's farmowners business in the U.S. in 2017. The group logged $56.6 million in direct premiums written for the year, with National Farmers Union contributing about $32.6 million.
An examination of National Farmers Union's financials shows stability in premiums and steady improvement when it comes to profitability. The soon-to-be-acquired business's direct loss ratio stood at 60.1% through the third quarter, down from 61.5% in the year-ago period and 64.6% for full year 2017.
