American Family Insurance Expands Direct Channel; Acquiring Homesite Group for $616M

September 5, 2013

In a move it says will complement its strong agency distribution system, Madison, Wis.-based American Family Insurance announced Thursday that the carrier has agreed to acquire direct homeowners insurer, Homesite Group, Inc., in a deal valued over $600 million.

American Family said it anticipates paying $616 million for Boston-based Homesite, a leading direct writer of homeowners, renters and condominium insurance.

The deal will be finalized by the end of the year, pending regulatory approval.

Agents will remain the company’s primary distribution channel, said Jack Salzwedel, American Family chairman and chief executive officer, in a statement.

The move strengthens American Family’s position in the marketplace by complementing its strong exclusive agent network with direct channel options to serve a different customer segment.

The purchase marks the second time in less than a year that American Family has acquired a direct property/casualty insurance company. American Family purchased non-standard auto insurer Permanent General Companies at the end of 2012.

“This is about meeting customer preferences,” Salzwedel said. “At American Family, we already have exceptional agents for customers who value the expertise and close personal attention our agents provide. Our agents are American Family’s foundation, and they will continue to be.

“Homesite allows us to serve a different segment of customers who want to use direct channels to handle their insurance needs. We want to provide options for all customer preferences.”

Homesite is privately owned by multiple entities and individuals, including Alleghany Corporation, Metalmark Capital through its management of the Morgan Stanley Capital Partners funds and The Plymouth Rock Company, Inc.

Homesite sells direct-to-consumer homeowners, renters and condominium insurance, using the Internet, call centers and technology-enabled platform solutions. Its sales primarily occur through alliances with insurers and other financial services companies.

Homesite was founded in 1997 and offers products in 46 states and the District of Columbia. The company is the 24th largest homeowners insurer in the U.S., with 2012 written premium of $548 million.

American Family, a mutual insurer founded in 1927, operates in 19 states, offering multiline insurance products and annuities through its 3,500 exclusive agents, with some sales through its Internet and call centers. The company reported 2012 written premium in all p/c insurance lines of $5.6 billion, and reports that it is the nation’s 10th largest homeowners provider, with 2012 written homeowners premium of nearly $1.59 billion.

Dan Schultz, American Family president and chief operating officer, noted that the acquisition provides market and geographic expansion for American Family, diversifying its share of the property insurance market.

Homesite sells its products nearly nationally, compared to American Family’s 19 operating states, which includes strong penetration in the Midwest.

The larger territory diversifies American Family’s catastrophe risk, an important element of preserving financial strength, Schultz said.

Schultz also said the acquisition will have no immediate impact on operations or positions at American Family or Homesite. Fabian Fondriest will stay on as Homesite’s chief executive officer, as will other members of the company’s leadership team.

“Our plan is for Homesite to operate as a separate and distinct entity, including maintaining its current operations and business partner relationships,” he said. “Long term, we’ll identify opportunities to learn and capitalize on each other’s strengths for the benefit of our customers.”

Fondriest said becoming part of American Family will allow Homesite to further expand, enhance sales-and-service platform capabilities and pursue profitable growth opportunities.

KPMG Corporate Finance LLC served as financial advisor and Foley & Lardner as legal advisor to American Family. Lazard Frères & Co. served as financial advisor and Willkie Farr & Gallagher as legal advisor to Homesite.

Source: American Family