National General announced the acquisition of 2 companies this week, Century-National Insurance Company (‘CNIC”) and Standard Mutual Insurance Company (“SMIC”), both of which primarily write personal lines and commercial auto lines of business in the Western, Southwest and Midwest markets.
These 2 acquisitions add scale and diversification to NGHC, expect long term EPS growth, but a re-underwriting approach will be required for the renewal book.
NGHC is valued 160% P/B. Stock price is 83% of 52 week high. My estimate is earnings for full year 2015 will be $1.50, after the new acquisition my 2016 estimate is $1.80.
These two acquisitions will increase the earnings potential for NGHC and provide synergies/cost savings. The diversification benefit to new customer base will be long term beneficial to earnings growth, however, SMIC and CNIC have both been writing business over 100% combined ratios the last 3 years. There will be a re-underwriting or pricing evaluation strategy for the new acquired business. Retention ratios may drop in the SMIC and CNIC business.
About Standard Mutual Insurance Company
Based in Springfield, Illinois, Standard Mutual Insurance Company began operations in 1921 and has a financial strength rating of “B+” from A.M. Best. The company predominantly underwrites private passenger automobile and homeowners lines in Illinois and Indiana. SMIC wrote approximately $49 million of direct written premium in 2014, and approximately $37 million through the first nine months of 2015. The company distributes products through approximately 250 independent agents. SMIC policyholders’ surplus as of September 30, 2015 was approximately $22 million.
About Century-National Insurance Company
Based in Van Nuys, California, Century-National Insurance Company began operations in 1956, has approximately 250 employees, and has a financial strength rating of “A” (excellent) from A.M. Best. CNIC wrote approximately $180 million of direct written premium in 2014 and approximately $150 million through the first nine months of 2015. The company is licensed in 41 states with a heavy concentration of business coming from four key states: California (more than two-thirds of premiums), Nevada, Arizona, and Illinois. CNIC predominantly underwrites homeowners, personal auto, and commercial auto liability, but also offers fire and allied lines, earthquake, and commercial multi-peril coverages. The company employs a multi-channel distribution strategy that includes approximately 800 independent agents and brokers, MGAs, lender-affiliated agencies, and direct response marketing.
Valuation – Year EPS ($)
- 2013 0.65
- 2014 1.34
- 2015 Est. 1.50
- 2016 Est. 1.80