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Crop-focused mutual eyes commercial lines M&A as potential growth driver

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Crop-focused mutual eyes commercial lines M&A as potential growth driver

A mutual insurer that has generated a majority of its earnings from multiperil crop policies plans to pursue inorganic growth in other areas following the completion of a pending stock conversion and initial public offering as another in a string of M&A deals within that business line grabs headlines.

The subscription phase of the initial public offering of a 45% stake in the common stock of Ni Holdings, an intermediate holding company formed in connection with the conversion of Fargo, N.D.-based Nodak Mutual Insurance Co. into a stock insurer within a mutual insurance holding company structure, is due to end March 6, according to a recently filed prospectus. Proceeds of the transaction, which also may include community and syndicated offering stages, could total as much as $103.5 million on a gross basis, assuming the sale of 10.35 million shares at $10 apiece.

NI Holdings estimates that it would have proceeds net of offering expenses and subscription rights redemptions of between $67.7 million and $94.2 million for general corporate purposes, depending on the actual amount of shares sold and the phase in which they are sold. The company expects the IPO to provide it with the additional capital necessary to support "substantially increased premium volume" through both organic means and acquisitions.

The Nodak Mutual group as consolidated by S&P Global Market Intelligence to also include the wholly owned Primero Insurance Co. and American West Insurance Co. as well as the affiliated Battle Creek Mutual Insurance Co. generated $148.2 million in direct premiums written for the first nine months of 2016, up from $142.5 million in the year-earlier period. In 2015, the group's $172.8 million in direct premiums written included $43.1 million in multiperil crop business. NI Holdings attributed 50.4% and 85.3% of the group's $16.8 million and $12.6 million in statutory net income in 2015 and 2014, respectively, to the business line.

Nodak Mutual ranked as the No. 18 multiperil crop insurance writer in 2015 based on direct premiums written at the group level, according to S&P Global Market Intelligence.

With close ties to the North Dakota Farm Bureau, the group relies on American Farm Bureau Insurance Services to process and administer claims under multiperil crop policies and to underwrite crop-hail coverage. Nodak Mutual is one of numerous state Farm Bureau-affiliated carriers to partner with and maintain an ownership stake in the MGA. American Agricultural Insurance Co. an affiliate of American Farm Bureau Insurance Services and a subsidiary of the American Farm Bureau Federation, is one of the 16 approved insurance providers under the standard reinsurance agreement of U.S. Department of Agriculture's Risk Management Agency.

Several of the other MGAs linked to approved insurance providers have been part of M&A transactions during the past year. Aspen Insurance Holdings Ltd. acquired AgriLogic Insurance Services LLC in January 2016; Zurich Insurance Group Ltd. purchased Rural Community Insurance Co. and its MGA in March 2016; and the parent of CGB Insurance Co. bought Heartland Crop Insurance Inc. from Everest Re Group Ltd. in August 2016. Most recently, Validus Holdings Ltd. agreed on Jan. 30 to buy the crop MGA unit of Archer Daniels Midland Co.

NI Holdings' organic growth plans include "selective expansion" of its multiperil crop program and broadening Primero's nonstandard auto business within its existing states of Nevada and Arizona and into the group's core upper Midwest states. Externally, the company may seek to acquire a commercial lines writer to enable it to better diversify its book of business. The commercial lines, excluding multiperil crop, accounted for $15.2 million in group-level direct premiums written in 2015. Personal lines direct premium volume approached $114.5 million.

Geographic expansion is also a potential area of opportunity to diversify the group's catastrophe risk and to potentially bolster its relatively insignificant presence in South Dakota, offering a "bridge" between its two largest states of North Dakota and Nebraska.

Nodak Mutual has experience in M&A, having bought American West in 2001, affiliated with Battle Creek Mutual in 2011 and acquired Primero in 2014. NI Holdings believes the IPO will provide it with additional flexibility beyond the constraints associated with the mutual structure to fund complementary acquisitions.