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Affiliation follows acquisition for growth-minded Auto-Owners

Less than one year after Auto-Owners Insurance Co. expanded the scope of its product offerings by way of an acquisition, the Lansing, Mich.-based company announced Dec. 7 that it would broaden its geographic reach through an affiliation.

Subject to certain closing conditions, Auto-Owners plans to complete the affiliation with the group led by Concord, N.H.-based Concord General Mutual Insurance Co. in the second quarter of 2017.

"Adding Concord and its affiliates to the Auto-Owners family of companies will present tremendous synergies and opportunities for growth on a superior financial platform, providing increased value to agents, customers and our companies," Auto-Owners Chairman and CEO Jeff Harrold said in a release.

Auto-Owners closed the purchase of Strickland Insurance Group, which included excess-and-surplus lines insurer Atlantic Casualty Insurance Co. and unit Little River Insurance Co., in a January deal valued at $168.4 million. The two insurers generated $100.6 million in direct premiums written in 2015 and had nearly $91 million of surplus at year's end, according to their most recent combined annual statement. Little River has since been renamed Auto-Owners Specialty Insurance Co.

A New England-focused personal lines insurer that, like Auto-Owners, distributes products through independent agents, Concord General and its affiliates combined to generate direct premiums written of $169.6 million during the trailing-12-month period ended Sept. 30, and their surplus as of that date was $244 million.

The Concord group as consolidated by S&P Global Market Intelligence includes Vermont Accident Insurance Co. Inc., Green Mountain Insurance Co. Inc., Sunapee Mutual Fire Insurance Co. and State Mutual Insurance Co. (ME). The list of affiliates also includes two mutuals that do not file annual statements with the NAIC: Bow Mutual Fire Insurance Co. and Weare Mutual Fire Insurance Co. Prior to the Strickland group acquisition, Auto-Owners was the parent of five stock insurance subsidiaries: Southern-Owners Insurance Co., Home-Owners Insurance Co., Property-Owners Insurance Co., Owners Insurance Co. and Auto-Owners Life Insurance Co.

The Concord group ranked as the sixth-largest personal lines insurer in Maine based on 2015 direct premiums written of $52 million, No. 8 in Vermont with $28.7 million in personal lines direct premiums written and No. 7 in New Hampshire with $46.6 million in personal lines business volume. It also placed among the 30 largest personal lines writers in Massachusetts.

The Auto-Owners group as it is currently consolidated by S&P Global Market Intelligence to incorporate the two acquired carriers was the No. 16 U.S. writer of personal lines business in 2015.

Private-passenger auto, homeowners and farmowners business accounted for 53.1% of the Auto-Owners P&C group's 2015 direct premiums written, excluding the acquired companies. Those lines represented 86.1% of the Concord group's 2015 writings. When combining the business attributable to the Auto-Owners group as it existed at year-end 2015 along with that of Atlantic Casualty, Little River and the Concord group on a pro forma basis, the total-filed direct premiums written would increase to $6.25 billion from $5.98 billion on a stand-alone basis.

From a geographic perspective, the Auto-Owners group produced 26% of the $5.98 billion in premiums from its home state of Michigan. Its concentration in that state would dip to just less than 24.9% on a pro forma basis.

A.M. Best, in placing its ratings for Concord General and its NAIC-filing affiliates under review with positive implications on Dec. 9, cited the potential financial and operational benefits of an affiliation with a larger, higher-rated organization and the opportunity to enhance product diversification, financial stability and agency relationships. The rating agency lowered the financial strength rating for the companies to A- from A a year ago. It referenced inconsistent operating performance, geographic concentration and an elevated expense ratio in taking that action.

The Concord group produced a net underwriting profit of $3.8 million for the first nine months of 2016, according to S&P Global Market Intelligence, as compared with a loss of $17 million in the year-earlier period. It has been since 2006 that the group produced an underwriting gain in a full calendar year.

The Auto-Owners P&C group has generated underwriting profits for four consecutive calendar years, and it appears well on its way to extending that streak to a fifth year. It produced a net underwriting gain for the first nine months of 2016 of $553.3 million, up from $494.5 million in the year-earlier period.