United Insurance Holdings Corp.UIHC recently announced a merger agreement with RDX Holding LLC, the parent company of American Coastal Insurance Company (ACIC). The transaction will enable United Insurance emerge as a leader in the specialized personal lines and commercial lines underwriter space. The deal is valued at approximately $310.36 million.
Pursuant to the agreement, shareholders of RDX Holding will own a 49% stake in United Insurance. The transaction is expected to close in the first quarter of 2017.
Rationale of the Merger
American Coastal Insurance Company boasts a strong foothold in the Florida commercial residential market. Moreover, the company has recently inked an exclusive MGA agreement with AmRisc. The company also has a track record of strong bottom-line growth as well as of offering high returns on equity. These factors not only ensure solid near-term fundamentals for United Insurance, but also pave the way for a healthy performance over the long run.
Notably, the company has been focused on establishing itself as a premierprovider of property insurance in regions prone to natural catastrophes. This transaction hence is a strategic fit for the insurer creating over $1 billion of premium in force.
On the other hand, RDX Holding expects to utilize United Insurance’s expertise to strengthen its base among other specialty cat underwriters.
The transaction is expected to be immediately accretive to both earnings per share and return on equity for United Insurance.
Through the merger, the company projects realizing near-term cost savings through reinsurance synergies. The deal is also aimed to createa tax-free reorganization.
Inorganic Growth Story
In the past, United Insurance had adopted the inorganic strategy to improve its growth profile. In Apr 2016, the company acquired Interboro Insurance Company to foray into the markets of New York and South California. In 2014, it had taken over Hawaii-based Family Security Holdings LLC (FSH) in a bid to expand into Louisiana and Hawaii.
Peers Following a Similar Strategy
Acquisitions and mergers have always been considered an effective inorganic growth strategy. Recently, Assurant, Inc. AIZ acquired American Title, Inc. for a cash consideration of $45 million to strengthen its capabilities in the housing market.
Arch Capital Group Ltd. ACGL has also agreed to acquire United Guaranty Corporation and AIG United Guaranty Insurance Limited from the parent company to expand its private mortgage insurance business.
Meanwhile, American Financial Group Inc. AFG has inked an agreement to buy all shares of National Interstate that are not currently owned by AFG’s wholly owned subsidiary, Great American Insurance Company.
United Insurance currently carries a Zacks Rank #3 (Hold).
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