Assurant, Inc. AIZ has inked a deal to buy Green Tree Insurance Agency, Inc. for a cash consideration of $125 million. With this, the company has strengthened its capabilities in the housing market. Shares gained about 1.03% in yesterday’s trading session reflecting optimism over the transaction, which is expected to culminate in the first quarter of 2017 pending closing conditions.
Green Tree Insurance Agency, a wholly owned subsidiary of Walter Investment Management Corp. WAC, is engaged in selling housing protection products, including voluntary homeowners’ and manufactured housing policies, and other insurance products. Green Tree Insurance Agency and the affiliated entities that Assurant is acquiring have generated $31 million in revenues through the first three quarters of 2016.
Per the transaction, Walter Investment has a potential earnout of up to $25 million based on future performance. The acquired company will operate as an indirect, wholly owned subsidiary of Assurant.
The acquisition will expand Assurant’s capabilities in voluntary offerings via Green Tree’s distribution channel apart from fortifying its business in the housing market. Assurant estimates the transaction to have minimum impact on its GAAP earnings in 2017 but improve margins on the existing block of business. Assurant also estimates that annualized net earned premium and fee income in 2017 will likely improve by $25 million.
Assurant presently earns underwriting profits on the majority of Green Tree’s voluntary homeowners’ and manufactured housing insurance sales. This acquisition entails Assurant to retain its existing book of voluntary insurance for home mortgage borrowers whose loans are serviced by Walter’s subsidiary, Ditech Financial Services. The acquisition also gives Assurant the scope to write additional voluntary business for Ditech borrowers.
On the other hand, Walter Investment divested Green Tree to focus more on its core operations –– servicing and originations businesses. Walter Investment reported loss in the first three quarters of 2016 and has been the worst performer among the 24 publicly traded companies in Tampa Bay as per media reports. The divestment, thus, is a strategic step by the company to prove its operational results.
Assurant is directing capabilities to targeted markets and enhancing its operating efficiency. The insurer remains focused on diversifying its product and service portfolio, adding client partnerships and growing market share. The buyout not only adds capabilities in the housing markets to Assurant’s portfolio, it also bears testimony to its financial strength.
The company is on track to restructure its business for long-term growth and is intensifying its focus on Specialty Property and Casualty and Lifestyle Protection. To strengthen its capabilities in the housing market, Assurant acquired American Title in Jul 2016 and expects the acquisition to be moderately accretive to earnings in 2017. The acquisition will complement Assurant’s strategy to focus on risk management in the housing market as well as on the expansion of fee-based business.
Assurant has not witnesses any earnings momentum in the last 60 days. Shares of the insurer also underperformed the Zacks categorized Multiline Insurance industry in the last three months. While Assurant’s shares returned 5.73%, the industry gained 13.78%. With optimism surrounding the company’s compelling inorganic growth story, we expect analysts to pull up their estimates exerting upward pressure on the Zacks Rank. The insurer currently carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 Rank stocks here.
Acquisitions are a well-accepted growth strategy among insurers. Recently, Brown and Brown Inc. BRO announced that its unit has acquired the commercial MGA operations of Insurance House, while Arthur J. Gallagher & Co. AJG acquired Australia-based Complete Financial Balance Pty Ltd.
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