An acquisition that will perpetuate the transformation of what was once a single-state, monoline workers' compensation insurer did not come about overnight.
The agreement to purchase Alaska National Insurance Co. will vault the group that conducts business under the CopperPoint Insurance Cos. name into the ranks of the top 25 U.S. workers' comp writers on a pro forma basis. It will also diversify the company by product line and geography, and position the group for further organic expansion within its existing markets.
And although the transaction pairs two companies said to possess compatible cultures and complementary business strategies, CopperPoint President and CEO Marc Schmittlein explained that coming to an agreement was not a short process.
"There was a lot of dating back and forth," he said, adding that CopperPoint focuses on building relationships with prospective M&A partners as opposed to bidding in auction processes.
Terms of the transaction were not disclosed, but a review of statutory data provides insight as to how significant it will be for a group that as presently constituted includes 10 members.
The CopperPoint companies generated $363.7 million in total direct premiums written in 2018, according to their combined annual statement, of which nearly $360.6 million came from the workers' comp line. Their new Anchorage, Alaska-based partner produced $249.6 million in direct premiums written across all business lines, with $180.9 million from workers' comp. The respective business mixes were reasonably similar for the trailing-12-month period ended June 30, 2019, with CopperPoint's and Alaska National's total direct premium volume amounting to $374.2 million and $249.2 million.
Based on 2018 direct premiums written for property and casualty groups as they currently exist, including the impact of completed acquisitions, CopperPoint ranked as the 34th-largest U.S. workers' comp writer in a business line led by the likes of Travelers Cos. Inc., Hartford Financial Services Group Inc. and Berkshire Hathaway Inc. Its position was dramatically advanced by the Dec. 31, 2017, purchase of Pacific Compensation Insurance Co., a Thousand Oaks, Calif.-based and Golden State-focused workers' comp insurer, from then-owner Alleghany Corp.
CopperPoint characterized that $150 million transaction as a "foundational element" of its efforts to expand and diversify beyond the borders of Arizona, where its predecessor operated as the State Compensation Fund prior to a 2013 conversion into a mutual company structure. CopperPoint also introduced commercial package, auto and umbrella coverage in Arizona beginning in 2016, and it expanded its product offerings in that state in 2018. The company also pursued organic expansion beyond the core CopperPoint and PacificComp markets of Arizona and California into Colorado, Nevada, New Mexico and Utah.
But, Schmittlein said, "It's tough when you're starting from scratch."
In Alaska National, CopperPoint will add a franchise that is licensed in 26 states and generated more than $1 million in 2018 direct premiums written from six of them. The deal's target offers commercial property, commercial auto, general liability, inland marine, umbrella and crime coverages in addition to workers' comp. Additionally, Schmittlein said Alaska National brings new expertise to CopperPoint within workers' comp specialties such as large deductible policies and retrospective rating plans.
The transaction will not only advance CopperPoint's standing on a national basis, but will also raise the group's profile in a California workers' comp market that has gained a reputation as a particularly challenging one over the past 20 years. The combination of CopperPoint, by virtue of the PacificComp deal, and Alaska National would rank No. 17 in pro forma 2018 California workers' comp business, as compared with the acquirer's No. 22 position in its current form.
Schmittlein said CopperPoint understands the nuances of the California market and he expressed confidence that the combination of the PacificComp and Alaska National books positions the company well in that state.
California and numerous other states have experienced downward pressure on workers' comp rates and loss costs in recent years as underwriting results have remained favorable on a calendar-year basis. Schmittlein credited CopperPoint's new mutual insurance holding company ownership structure for giving it "the gift of time to make the right decisions," including investments in acquisitions and new technology, despite the top-line challenges presented by the soft market. Alaska National also referenced the long-term view made possible by the corporate structure as a positive attribute of the combination.
The former CopperPoint Mutual Insurance Co. converted to a stock corporation under the newly formed CopperPoint Mutual Insurance Holding Co., effective at the start of 2019. The reorganization allowed for the extension of mutual membership to policyholders of other CopperPoint companies.
It also provided greater flexibility as the group continues to pursue organic and inorganic expansion, something the company brought to bear with its latest — and, most likely, largest — acquisition as it seeks to create a top-tier, regional commercial lines enterprise.
