Zurich Insurance Group AG agreed to buy a Wells Fargo & Co. crop-insurance business for $1.05 billion as the Swiss company puts to work excess cash left over from a separate takeover bid that it abandoned this year.
The purchase of Rural Community Insurance Services, (RCIS), will give Zurich a 20 per cent share of a highly regulated market guarding farmers against weather-related losses, Vontobel analyst Stefan Schuermann wrote in a note after the deal was announced Friday. It will provide about $1.6 billion in net earned premiums by 2017, adding 3.5 percent to Zurich’s top line, he wrote.
Zurich joins HCC Insurance Holdings Inc. and Maurice “Hank” Greenberg’s Starr Cos. in expanding into crop coverage to bet on long-term growth in food demand and benefit from government subsidies that help absorb losses. HCC agreed last year to buy Producers Ag Insurance Group from CUNA Mutual Group, while Farmers Mutual Hail Insurance Co. of Iowa reached a deal to buy Deere & Co.’s crop-insurance unit.
“The acquisition of RCIS will increase risk diversity of our general insurance business by leveraging the crop exposure, which has low correlation to the rest of our book,” Kristof Terryn, chief executive officer of Zurich’s general insurance business, said in a statement. Zurich is one of the largest providers of business coverage in the U.S. and has exposure to the home and auto markets though its management relationship with Farmers Insurance.
Zurich, which already provided reinsurance to RCIS, will pay Wells Fargo $675 million plus the amount of excess capital in the unit when the deal closes, estimated at as much as $375 million, according to statements from the companies. The insurers’ annual operating results are “not material” to the bank and the transaction is expected to be completed by the end of the first quarter, San Francisco-based Wells Fargo said.
Wells Fargo, the largest U.S. bank by market value, has focused on boosting commercial-lending and wealth-management units, while paring some insurance operations.
Source: Guardian News