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Fortegra Announces Twin Divestments

Zacks Equity Research

Fortegra Financial Corporation (FRF) has inked a deal to sell its subsidiaries Bliss & Glennon (B&G) and eReinsure to AmWINS Group Inc. for an undisclosed amount. The acquisition is expected to culminate within a month’s time. B&G is a wholesale insurance broker in excess and surplus lines and manages general agency. On the other hand, eReinsure manages the placement of facultative reinsurance through an online platform.

Divestiture of these two subsidiaries by Fortegra will allow the company to intensify focus on its payment protection, service contract and warranty products. These are deemed the major growth drivers for Fortegra that will aid margin expansion going forward.

Fortegra’s payment protection segment reported a 31.5% year-over-year increase in its net revenue during the third quarter of 2013.  

Nonetheless, Bliss & Glennon and eReinsure together had contributed favorably toward consolidating Fortegra’s market position in the respective lines of business. Fortegra acquired B&G from Willis Group Holdings Public Limited Company (WSH) in Apr 2009. eReinsure had been taken over in Mar 2011. These two subsidiaries have consistently garnered growth in brokerage commissions and fees for Fortegra, in turn driving the company’s top line.

Brokerage commissions and fees of Fortegra had increased 39.7% to $34.4 million in 2011. $1 million worth of increase was contributed by B&G, while the acquisition of eReinsure contributed $8.8 million in fees. In 2012, B&G contributed additional $1.3 million to the 2.6% increase in brokerage commissions and fees. eReinsure’s declined by $0.4 million though during that period due to lower license fees. However, for the first nine months of 2013, both B&G and eReinsure contributed additional $0.9 million and $0.2 million respectively to drive a 4.1% increase in total brokerage commissions and fees of Fortegra.

Fortegra expects to use the net proceeds from the sellout to erase some of its debt burdens. The company had total debt of $117.8 million as of Sep 30, 2013 which declined nearly 5.3% from 2012-end level. The debt profile is expected to improve further and strengthen Fortegra’s balance sheet in the coming quarters.

Fortegra presently carries a Zacks Rank #5 (Strong Sell). However, better-ranked stocks in the multi-line insurance industry include Old Republic International Corporation (ORI) and Prudential plc (PUK). Both these stocks sport a Zacks Rank #1 (Strong Buy).

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