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Summary
- Zurich Insurance Group has agreed to buy the US property and casualty (P&C) business of MetLife Inc
- Both Zurich Insurance Group and MetLife have agreed on a deal size of $3.94 billion
- Zurich Insurance Group shares slipped 2.13 per cent to an intraday bottom of CHF 357.90
Insurance major Zurich Insurance Group AG (SWX: ZURN) said on Friday that it would buy the US property and casualty business of the insurance and annuities service provider MetLife Inc (NYSE:MET). The deal will be carried forward by Farmers Group Inc, the wholly owned subsidiary of Zurich Insurance Group.
The Deal
Both Zurich Insurance Group and MetLife have agreed on a deal size of $3.94 billion, where the Farmers Exchanges will contribute $1.51 billion, while the rest $2.43 billion will be added by Zurich Insurance Group. The acquisition is likely to provide a nationwide presence and access to the new distribution channels of Farmers Exchanges.
Zurich Insurance has no ownership interest in the Farmers Exchanges. Its subsidiary Farmers Group Inc provides certain facilities to Farmers Exchanges as its attorney-in-fact including non-claims and ancillary services and collects a fee for the services it provides.
According to the transaction details, Farmers Group will immediately sell the ‘less certain assets and liabilities’ of the P&C business to Farmers Exchanges after acquiring the entire 100 per cent stake of the unit. The transaction is likely to be concluded in the second quarter of 2021 and is subject to regulatory approvals, Zurich Insurance said.
The acquisition details
The Metlife’s P&C business has an employee strength of 3,500 people, net written premiums in 2019 equivalent to $3.6 billion and $2.4 million worth of policies.
With the finalisation of the deal, the Farmers Group will receive a 10-year exclusive distribution agreement. Farmers Exchanges is planning to offer its in-house services on the MetLife’s Group Benefits platform that has nearly 37 million employees spread over 3,800 enterprises, Zurich Insurance Group said.
The acquisition is expected to fetch a return of approximately 10 per cent on the investment from 2023. Upon the completion of the deal and with the access to MetLife’s network of agents, the Farmers Exchanges is anticipated to become the sixth largest personal lines insurer in the United States.
Meanwhile, the deal between Zurich Insurance and MetLife is likely to improve the fee-based earnings of Zurich Insurance and is likely to support the latter in delivering the growth targets set for 2022.
Stock performance
Following the deal announcement on 11 December, the SIX Swiss Exchange-floated shares of Zurich Insurance Group slipped as much as 2.13 per cent to an intraday bottom of CHF 357.90 from the previous closing price of CHF 365.70.
Zurich Insurance Group AG shares (11 December)
(Source: EODHD/Others, Thomson Reuters)
From the beginning of November, the stock of Zurich Insurance (SWX: ZURN) has returned a little more than 20 per cent partially offsetting the share price plunge witnessed in the February-March period due to Covid-19 crisis. On a year-to-date (YTD) scale, the shares of Zurich Insurance have fallen 9.1 per cent.
On the other hand, the NYSE-listed stock of MetLife settled marginally higher at $47.55 on 10 December, up 0.19 per cent from the previous day’s close. The shares are yet to see the first market reaction on 11 December.
