The Hartford, Eyeing Specialty Markets, Will Grab Navigators in $2.1B Cash Deal

August 22, 2018

The Hartford plans to snatch up The Navigators Group in a $2.1 billion cash deal that will boost its specialty insurance and reinsurance offerings while giving it a larger global reach.

Plans call for Hartford to pay $70 per share in a transaction that was approved by both companies’ boards of directors. Navigators’ shareholders must still approve the deal, and there are other customary closing conditions ahead. The transaction is expected to close in the 2019 first half.

The $70 per share offer price represents a multiple of 1.78 times Navigators’ fully diluted tangible book value per share as of June 30, 2018 and an 18.6 percent premium to the 90-trading-day average stock price.

There’s also a “go-shop” provision designed to give other potential acquirers the opportunity to determine whether they are interested in proposing to acquire Navigators. Under this provision, Navigators will have 30 days to solicit competing acquisition proposals. If the board of directors accepts a competing proposal during the “go-shop” period that Hartford does not match, the successful competing bidder would pay a termination fee to Hartford.

Strategic Plans Realized

Christopher Swift, Hartford’s chairman and CEO, said that the Navigators deal will help the property/casualty insurer meet its key strategic plans.

“It expands our product offerings and geographic reach, and adds tenured and proven underwriting and industry talent while strengthening our value proposition to agents and customers,” Swift said in prepared remarks.

The Hartford will be getting an insurer founded in 1974 with a focus in the global marine, construction and energy industries, plus U.S. excess casualty and surplus lines. Navigators also has a presence in Lloyd’s, as well as growing underwriting operations in Europe, Asia and Latin America. The bulk of Navigators’ business involves U.S. Insurance but it also has sizable International Insurance and Global Reinsurance operations.

In recent calls with analysts, Swift has said the insurer was prepared to again use its excess capital for an acquisition if a suitable opportunity arose, particularly in commercial lines specialties and verticals where it has already recently done “bolt-on” transactions, including Maxum excess and surplus, Aetna group and life, and Foremost small business accounts. He said the insurer was interested in targets with up to $2 billion in premium.

Navigators matches that target. For full-year 2017, Navigators reported gross written premiums of $1.7 billion and net written premiums of $1.3 billion. Its combined ratio for full-year 2017 was 103.2, the first time since 2011 it failed to come in under 100. Net income was $40.5 million, and net operating earnings were $35.0 million. About 58 percent of its gross written premiums is in the U.S. Its global reinsurance business is largely focused on accident and health.

Based in Stamford, Conn., Navigators has 22 U.S. and eight international locations. The company brings with it 820 employees globally who will become part of Hartford upon closing. About 600 Navigators staff members are based in the U.S. and 150 are located in the U.K.

Stanley A. Galanski, Navigators president and CEO, said in prepared remarks that the combination “will create exciting opportunities to deliver enhanced value to our brokers and policyholders.”

Enough Cash on Hand

The Hartford said it has enough capital to fund the acquisition but will consider alternative sources of capital prior to the closing. It does not intend to issue common equity in connection with the acquisition.

For 2020, the insurer expects the acquisition to be accretive to net income by $30-$75 million and to core earnings by $60-$95 million. This includes a contribution from Navigators of $80-$125 million to net income and $110-$145 million to core earnings, offset by a reduction of approximately $50 million in The Hartford’s net investment income, after tax, due to the cash used to fund the acquisition. All of these estimates are preliminary and will be updated based on market conditions, business plans, financial results and other developments between now and closing.

Plans for The Hartford to acquire Navigators comes as Navigators itself has pursued acquisitions this year and The Hartford was a a possible acquisition target.

In June, Navigators completed its acquisition of Belgian specialty insurer Bracht, Deckers & Mackelbert NV, a specialty underwriting agency, and its affiliated insurance company, Assurances Continentales – Continentale Verzekeringen NV. Both companies are headquartered in Antwerp, Belgium. Navigators paid €35 million ($41.3 million) in cash for BDM and ASCO. As part of the transaction, Navigators also acquired Canal Re SA, a Luxembourg reinsurance company and a wholly owned subsidiary of ASCO.

Earlier this summer, The Hartford was itself the target of speculation that Europe’s largest insurer, Allianz, was interested in buying it.

*Insurance Journal contributed to this story.

Sources: The Hartford, The Navigators Group