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American Financial Unit to Enhance Paratransit Business

Zacks Equity Research

National Interstate, the commercial transportation specialist subsidiary of American Financial Group, Inc. AFG has inked a deal with Atlas Financial Holdings, Inc. AFH. Per the deal, National Interstate will be the exclusive underwriter of Atlas Financial’s paratransit business.

National Interstate intends to commence policy issuance in the third quarter of 2019. The subsidiary also expects that a large portion of Atlas Financial’s $110 million paratransit business will be eligible for quotation under this arrangement over the first 12 months following inception of the agreement.

Per the agreement, National Interstate may acquire the renewal rights for the business held by Atlas Financial and some of its subsidiaries after 12 months of the transaction. Additionally, American Financial has been granted a five-year warrant to acquire 19.9% stake in Atlas Financial at an exercise price of 69 cents per share.

The transaction will not only enhance National Interstate’s paratransit book but will also help it expand in the specialty transportation niche.

On Nov 10, 2016, American Financial acquired 49% of National Interstate, a property & casualty insurer, for $315 million. American Financial is a niche player in the P&C and annuity markets. The recent transaction is a strategic fit as American Financial is familiar with passenger transportation business and can capitalize on the opportunities offered by the market.  

Given continued solid operational performance, management now expects Specialty Property and Casualty Group’s net written premiums to be flat to up 3% in 2019. Net written premium is expected to increase in the range of 3-7% for the Property and Transportation Group.

American Financial is actively involved in startups, small-to-medium sized acquisitions and product launches. The Zacks Rank #2 (Buy) property and casualty insurer, with focus on specialized commercial products, has traditionally maintained moderate adjusted financial leverage of around 20%, with good cash flow and interest coverage ratio. This financial stability helps the company pursue strategic growth opportunities.

Shares of American Financial have gained 11.4% year to date, outperforming the industry’s rise of 4.7%. A sturdy growth profile, price increase and lower cost trends should favor the company in the long run.

There have been a number of acquisitions in the insurance space of late given the significant capital available. In its continuous efforts to expand internationally, Arthur J. Gallagher & Co. AJG acquired The Protectors Insurance Brokers Pty Ltd and Regent Insurance Brokers Pty Ltd. while Brown & Brown of Kentucky, Inc., a subsidiary of Brown & Brown, Inc. BRO, acquired United Development Systems, Inc.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Brown & Brown, Inc. (BRO) : Free Stock Analysis Report
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