The Allstate Corporation ALL has announced that it will acquire SafeAuto, a non-standard auto insurance carrier.
The deal valued at $300 million includes a combination of $270 million and $30 million of dividend. SafeAuto is the best fit for Allstate, given its reach in 28 states and a provision of low-cost insurance.
Allstate is among the top auto insurers in the United States. Among the leading auto insurers, those holding the top spot are State Farm, Geico, the subsidiary of Berkshire Hathaway Inc. BRK.B and The Progressive Corp. PGR. Smaller players are The Travelers Companies, Inc. TRV, Chubb Limited, et al.
SafeAuto to Make the Most of National General
The SafeAuto deal will leverage Allstate’s recently-closed acquisition of National General. It will add capabilities and distribution to National General’s direct-to-consumer non-standard auto insurance operations and utilize the latter’s track record of acquiring and integrating companies to accelerate growth.
SafeAuto will broaden the company’s already vast product and distribution footprint in auto insurance, which forms a chunk of its overall business. The Auto business generated 75% of its total underwriting income and 69% of premiums earned in 2020. The Auto business is quite profitable with its combined ratio of 86% (a combined ratio of less than 100% implies profitability).
In 2020, auto business improved on lower claims as road mishaps were minimal following fewer people driving cars due to lockdown measures. Thus, there were lesser casualties of accidents. This, in turn, contributed favorably to the company’s underwriting results. Evidently, it reimbursed its customers with more than $948 million last year via a shelter-in-place payback.
However, the auto insurance business slowed down due to weak car sales.
Auto Insurance: Key Catalyst
Allstate is focusing on growing its property and liability business of which auto insurance is the principal component. Per a ResearchAndMarkets.com report, The United States Motor Insurance Market is estimated to see a CAGR of approximately 3% during the 2020-2025 forecast period. The auto sector is facing a sea change as the autonomous vehicle (AV) revolution will likely bring about a fundamental shift from personal ownership to shared mobility.
The combination of Allstate's standard auto and homeowners insurance expertise with National General's knowhow in nonstandard auto insurance and now the SafeAuto deal will most likely enrich and expand the company’s portfolio of products to be provided through independent agents.
Allstate is also shedding its non-core business to deepen its focus on higher return-generating businesses. Its multiyear initiative to emerge as a low-cost digital insurer will help it lead the pack in the industry.
Technological Investment a Boon
To this end, Allstate is investing in technology to digitize its processes and expanded its utilization of virtual claims processes in response to the coronavirus outbreak. It is continuing to implement new technology and process improvements that provide continued loss cost accuracy, efficient processing and enhanced customer experiences that are simple, fast and produce high degrees of satisfaction.
Shares of this company have gained 33% in six months’ time, outperforming its industry’s growth of 18%.
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Allstate is firing on all cylinders to fuel business growth. The stock should be kept in your portfolio for the long haul.
Allstate currently Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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