NEW YORK - Arch Insurance North America, a division of Arch Capital Group Ltd. (NASDAQ:ACGL), has announced a definitive agreement to purchase the U.S. MidCorp and Entertainment insurance businesses from Allianz (ETR:ALVG) Global Corporate & Specialty SE (AGCS) for a cash consideration of $450 million. The transaction is anticipated to close in the second half of 2024, pending regulatory approvals.
The acquisition includes select specialty insurance programs currently underwritten by Fireman’s Fund Insurance Company and its subsidiaries, which generated $1.7 billion in gross premium in 2023. The deal is expected to further Arch's expansion into the middle-market property and casualty segment and will see approximately 500 employees from the acquired businesses join Arch Insurance.
Matt Shulman, CEO of Arch Insurance North America, remarked on the strategic significance of the acquisition, stating it will substantially enhance the company's capabilities and presence in the U.S. middle market. Shulman highlighted the addition of the Entertainment business as a complement to Arch's existing specialty product portfolio.
AGCS North America CEO Tracy Ryan expressed confidence in the transition, emphasizing the value of the employees who have supported the MidCorp and Entertainment clients and brokers, and their potential contribution to Arch.
Arch Insurance, which reported approximately $5.8 billion of gross premium written in North America in 2023, has experienced five consecutive years of double-digit topline growth. Nicolas Papadopoulo, CEO of Arch Worldwide Insurance Group, sees the acquisition as a move to strengthen Arch Insurance's market leadership in the specialty insurance space.
The capital requirement for Arch to support the business is estimated at $1.4 billion. Financial advisory for the transaction is being provided by Goldman Sachs (NYSE:GS) & Co. LLC and J.P. Morgan Securities LLC, with Willkie Farr & Gallagher LLP serving as legal advisor to Arch.
This news is based on a press release statement from Arch Capital Group Ltd.
InvestingPro Insights
As Arch Capital Group Ltd. (NASDAQ:ACGL) sets its sights on expanding its market presence with the acquisition of Allianz’s U.S. MidCorp and Entertainment insurance businesses, it’s worth noting that ACGL is currently trading at a low earnings multiple. With a P/E ratio of 7.66 and an adjusted P/E ratio for the last twelve months as of Q1 2023 at 7.72, the company presents itself as a potentially undervalued stock in the insurance industry. This is particularly relevant as investors consider the financial soundness of ACGL in light of its new acquisition.
Investors might also take interest in the company’s stock behavior, which generally trades with low price volatility. This characteristic could be seen as a positive trait for those looking for stable investment options, especially in the dynamic insurance sector. Furthermore, with a strong return over the last three months of 18.59%, ACGL appears to be maintaining a positive performance trajectory.
With a market capitalization of $34.03 billion and a revenue growth of 41.83% over the last twelve months as of Q1 2023, Arch Capital Group's strategic moves seem to be backed by solid financial metrics. This growth narrative is supported by a substantial increase in EBITDA, which grew by 126.82% in the same period, indicating efficient operational management and profitability potential.
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