Seeking to move on from a business line that is “not core” to its future strategy, QBE North America is selling its lender-placed insurance business to National General Holdings Corp. (NGHC), a specialty personal lines insurance holding company.
The lender-placed insurance business of QBE North America, a division of Australia’s QBE Insurance Group Limited, was the U.S.’s second largest in 2014, according to a release from National General.
According to National General, QBE’s lender-placed insurance business produced $576 million of gross written and managed premium in 2014 and tracked 10.7 million home and auto loans as of Dec. 31, 2014.
Despite those substantial figures, QBE said that after undergoing a strategic review of its business, it concluded that the U.S. lender-placed insurance business line was not going to be a part of its future.
According to a release from QBE, National General will acquire QBE lender-placed insurance business, which includes agency operations, loan tracking activity and provision of insurance protection.
The acquisition includes certain assets, such as loan-tracking systems and technology, client servicing accounts, intellectual property, and vendor relationships, as well as the assumption all related insurance liabilities in a reinsurance transaction through which National General will receive the loss reserves, unearned premium reserves, and invested assets at closing.
According to National General, the loss reserves are approximately $92 million; the unearned premium reserves are approximately $247 million; and the invested assets are approximately $342 million.
All those figures are as of June 30.
The purchase price will be an aggregate cash payment of $90 million, payable at closing, which is expected to occur within 90 days.
“As previously advised, we have been evaluating a range of strategic options with regards to the (lender-placed insurance) business in North America,” QBE Group CEO John Neal said. “The sale of this business is a pleasing result as we look to focus on commercial lines and significantly build out our specialty underwriting capabilities in North America.”
According to a release from QBE, the sale of the lender-placed insurance business is expected to free up more than $100 million of capital that will be available for reinvestment elsewhere in QBE North American’s operations.
Additionally, the overall impact of the sale on QBE’s 2015 fiscal year net profit before tax is expected to be a loss of around $120M, primarily due to one-time non-cash charges and write-offs in connection with the transaction, some of which will be recognized in QBE’s 2015 interim result reflecting the held for sale status of the asset as of June 30.
“While the lender-placed business has had difficulties in the past, we believe it is now an area of great opportunity after numerous changes that have been enacted throughout the industry,” Michael Karfunkel, chairman and CEO of National General said.
“We are excited to add this complementary niche business to our profitable and growing personal lines franchise, and we believe it is a natural fit with our homeowners and auto expansion efforts,” Karfunkel said.
“We look forward to working with the existing management team and employees and providing them with the broad resources and capabilities that National General has to offer,” Karfunkel concluded. “We expect the transaction to be immediately accretive to earnings.”