Allied World Arm to Expand Operations in Southeast Asia

Property, casualty and specialty insurance and reinsurance solutions provider Allied World Assurance Company Holdings, AG (AWH) has announced that its arm Allied World Assurance Company, Ltd will be acquiring the Hong Kong and Singapore operations of Royal & Sun Alliance Insurance plc.

The transaction, worth $215 million, will be funded by Allied World from its cash coffers and as such will not change its financial leverage ratio which stood at 17.8% at Jun 30, 2014. The company will contribute an additional $90 million as capital for smooth operation. The acquisition will have to wait for approval from regulatory bodies of both Singapore as well as Hong Kong and will likely be completed sometime in the first half of 2015.

Allied World’s international insurance segment, with operations in Bermuda, Europe and Asia Pacific is a significant contributor to the company’s earnings and has experienced growth with the recent European and Lloyd’s expansion. In the first half of 2014, the segment’s gross premium written increased 5.5% year over year owing to continued growth from new initiatives and new lines of business. During the second quarter, the company opened a new branch office in Sydney, Australia to further expand its distribution network in the Asia Pacific region.

The recently announced acquisition will bring in a niche group of specialty lines, including casualty, construction and engineering, marine and property business and will be immediately accretive to Allied World’s earnings.

Allied World has specifically chosen Royal & Sun Alliance Insurance because of its long operating history in both regions. While Royal & Sun Alliance Insurance has been present in Hong Kong for the past 40 years, its relation with Singapore is 180 years old. Last year, these units produced nearly $250 million of gross premium written. Allied World which currently has a niche commercial insurance business in the region will complement its business by adding specialty business.

Apart from bringing in increased business, the acquisition will lead to regional market leadership, bring in talented management professionals and expand its product profile and distribution capabilities.

We expect the Zacks Consensus Estimate to move north over this optimism. Currently, the company carries a Zacks Rank #3 (Hold). Better-ranked sector stocks include Endurance Specialty Holdings Ltd. (ENH), Global Indemnity plc (GBLI), and Mercury General Corp. (MCY). All these stocks carry a Zacks Rank #1 (Strong Buy).