By Leslie Scism and Julie Steinberg
Swiss insurer Zurich Insurance Group AG said it would acquire
MetLife Inc.'s car and home insurance business for $3.94 billion in
cash, a move that will substantially boost the size of its Farmers
business in the U.S.
The deal reflects a push by big car insurers to gain more scale
to pay for advertising and as technological change is coursing
through the car- and home-insurance industry. For MetLife, the
divestiture sheds a relatively small unit at what analysts say is a
premium price.
An important part of the deal is that Farmers, which
traditionally has relied on agents for sales, will offer its
policies through employee-benefits programs run by MetLife. This
will diversify the way Farmers distributes policies, while MetLife
will earn commissions on those Farmers sales. The deal will enable
MetLife to continue to focus on selling a diverse array of products
to workers enrolled in its benefit programs.
Zurich, through its subsidiary Farmers Group Inc., will
contribute $2.43 billion to the deal, while Farmers Exchanges, its
U.S. partner, will pay $1.51 billion. Zurich earns fees for certain
administrative and management services provided to Farmers
Exchanges.
The transaction will make Farmers the seventh-largest insurer in
the U.S. by property-casualty premium volume, up from ninth, the
company said. Pro forma premiums would be $24.2 billion from $20.5
billion previously based on 2019 data, it said. Its percentage
market share will increase to 5.5% from 4.4%, said David Havens, a
managing director at Imperial Capital LLC.
"There's no question that auto insurance is increasingly
becoming a scale play -- in part because auto insurance itself is
undergoing a rapid technology-driven transformation," said Robert
Hartwig, a professor of insurance at the University of South
Carolina's Darla Moore School of Business.
In one recent sign of that transformation, General Motors Co.
last month said it would begin to market car insurance based on
data from onboard computers that will help size up risks posed by
drivers. The GM pact is with a unit of American Family
Insurance.
Farooq Hanif, an analyst with Credit Suisse, said the deal would
help Farmers make better use of its large annual expenditures for
quirky advertising to compete against companies including Allstate
Corp., Berkshire Hathaway's Geico unit, Liberty Mutual Insurance,
Progressive Corp. and USAA, all big advertisers as well.
Farmers long has had a heavier presence on the West Coast than
other parts of the country, and the deal will provide it access to
many more customers in parts of the country where it doesn't have
as many agent relationships, Mr. Hanif said. Farmers said the
acquisition would turn it into a top-10 seller of personal
insurance lines in the northeastern U.S., up from 24th now.
Jeff Dailey, chief executive of Farmers Group Inc., said, "It
really is a scale game if you think about advertising and pricing
with more data....The more data you have in general, the more
sophisticated your pricing can be."
He said the acquisition also would better diversify the
company's risk exposure beyond catastrophe-prone California and
Texas.
For MetLife, the deal comes as the insurer has focused on
expanding offerings in its big business of selling
employee-benefits programs to companies, including life and dental
insurance. It recently agreed to purchase a vision insurer, on the
heels of a deal involving pet insurance.
MetLife says its employee-benefits unit serves 3,800 employers
and there are 37 million employees at these companies who are
potential car- and home-insurance purchasers.
MetLife Chief Executive Michel Khalaf said the transaction would
allow the company to streamline and focus on its core businesses.
The company plans to buy back $3 billion in common stock, it said
Friday.
Some analysts expect growth in sales of car and home insurance
through benefits programs as more consumers opt to buy insurance
without going through agents. MetLife spun off most of its U.S.
retail life-insurance operations in 2017 through the creation of
Brighthouse Financial, so it doesn't advertise nationally to
individual consumers. Instead, in the U.S., it targets corporate
buyers. MetLife also has a large international life-insurance
business.
Insurers globally have been reconsidering their operations in
the face of expected continued growth of technology such as
"telematics" for sizing up the risk of drivers. They are also
grappling with the impact of low interest rates on their investment
portfolios, a situation heightened by the Covid-19 pandemic.
Besides the push for scale, some are pruning units where they can't
make enough money to compete.
Last month, a Canadian and Danish insurance consortium agreed to
buy the U.K.'s RSA Insurance Group PLC for GBP7.2 billion,
equivalent to $9.6 billion. And earlier this year, Allstate Corp.
agreed to acquire peer National General Holdings Corp. to expand
its reach.
Bankers say more deals are in the offing.
Consolidation in the insurance industry extends beyond
property-and-casualty. Private-equity firm KKR & Co. in July
said it would buy retirement and life-insurance company Global
Atlantic Financial Group Ltd. for more than $4.4 billion.
Write to Leslie Scism at leslie.scism@wsj.com and Julie
Steinberg at julie.steinberg@wsj.com
(END) Dow Jones Newswires
December 11, 2020 13:30 ET (18:30 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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