American Family Mutual Insurance Co. S.I., approaching the anniversary of a landmark mutual-to-stock conversion, made the biggest splash in its new corporate structure when it announced several transactions of the kind that the reorganization had been intended to facilitate.
In acquiring Networked Insights, Inc., a Chicago-based data and analytics software company in which it had previously invested through American Family Ventures, the insurer said it will be better positioned to quickly identify and meet customer needs in new ways. American Family also confirmed the acquisitions of HomeGauge, an Asheville, N.C.-based home inspection software company, and the "mobile-first" inspection software platform of HomeHubZone as it intends to integrate key features of that product into future HomeGauge releases.
In its previous mutual insurance company structure, American Family had been an occasional participant in M&A activity. Its most significant transactions had been the December 2012 purchase of the holding company of the group of nonstandard auto insurers that conduct business as The General and its acquisition the following year of homeowners insurer Homesite Group Inc.
Though they involved insurance carriers, the deals were unique in their own ways as they added new forms of distribution and geographies to a company that had traditionally relied on an exclusive agency force.
American Family listed an enhanced ability to pursue traditional insurance M&A among its rationale for the mutual-to-stock conversion. Now that it is organized in a mutual insurance holding company structure, the insurer has a broader range of structural options from a deal-making perspective, including the ability to conduct sponsored demutualizations and to merge with other similarly structured organizations.
Through its intermediate holding company, American Family Insurance Mutual Holding Co. unit AmFam Holdings Inc., the insurer also has the capability (though not the immediate intention) to issue stock or debt securities to help fund acquisitions and organic growth. Mutual insurers typically are limited to the issuance of surplus notes for such purposes, though American Family did take a novel approach of borrowing from the Federal Home Loan Bank of Chicago in connection with the Homesite deal.
Most relevant to the recent announcement, American Family said in the policyholder information booklet for its reorganization that mutual insurers face regulatory restrictions pertaining to investments in non-insurance and ancillary businesses. The intermediate holding company within the new structure "is well suited" to acquire those entities at a time in which American Family said that "[m]any property and casualty insurance companies are increasingly focusing on investments in synergistic non-insurance business and technologies."
Non-insurance entities "can provide important customer benefits, such as technologies that can help prevent thefts or accidents and save lives, thereby also reducing potential claims and costs for the insurance companies in the group," American Family said.
The company in a Dec. 14 release said the addition of Networked Insights would "complement and improve the personal service" it offers its insurance customers through the use of data analytics and artificial intelligence. And based on an interview with company executives, it is clear that they view the deal as strategic in nature.
American Family's involvement with Networked Insights as an investor goes back more than four years, according to founder and CEO Dan Neely. The insurer also contributed to the $30 million in funding Networked Insights raised in January. It has also been a client, including as it sought data-driven, audience-centric insights to guide its ongoing multimedia marketing campaign.
American Family Chief Business Development Officer Peter Gunder said that his company has been a "very satisfied customer" and the acquisition represents "a very logical decision" that will create additional value. The company has placed a strategic emphasis on "the highest quality" data science and analytics, he added, and the deal represents a commitment to add even more resources to those capabilities.
In considering a sale, Neely said Networked Insights had three priorities: to stay together as a team, achieve "a great outcome for shareholders," and operate in a situation where the company can continue to pursue innovation.
Though terms of the deal were not disclosed, Neely said it "checked all three boxes and then some." He expects the company to continue to build its business while going "very deep" in the insurance vertical. President and COO Gerry Komlofske noted that there will be an opportunity to do "an enormous amount of work looking at business processes that affect the combined ratio," including in areas such as written claims information, fraud detection, and greater agent efficiency.
Gunder said that he is pleased by the "strategic reconnaissance" that American Family Ventures has provided and that the company will remain "opportunistic" regarding potential future transactions — deals that it now possesses greater flexibility in pursuing.