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I. Review of M&A Activity in 2015
slower pace since there are few off-shore reinsurers with significant exposure to catastrophe risks that remain independent after the recent string of consolidations.
c. Other Notable Transactions
After abandoning a potential bid for RSA in the U.K., in December Zurich Insurance Group announced an agreement to acquire U.S. crop insurer RCIS for approximately $1.05 billion. This represents the third significant transaction in the highly regulated U.S. crop insurance industry over the last two years. In 2014, HCC Insurance Holdings acquired Producers Ag Insurance Group from CUNA Mutual Group for $110 million, and Farmers Mutual Hail Insurance Company of Iowa acquired John Deere Insurance Company from Deere & Company. These transactions quickly followed regulatory changes to the U.S. crop insurance industry that were implemented through the 2014 Farm Bill (The Agricultural Act of 2014). In 2015, Congress cut $3 billion a year from the program (representing about a third of its total governmental funding) only to repeal that funding reduction one month later. Further changes to the crop insurance program could lead to additional M&A activity in the industry in future periods.
Enstar continued its M&A activity in 2015 with several transactions. It acquired blocks of run-off workers compensation and occupational accident business through reinsurance transactions with both Sun Life and ReliaStar. It also acquired two limited liability company subsidiaries of Wilton Re Holdings Limited that own interests in certain life insurance policies for $173 million. Notably, in May of 2015, the Canada Pension Plan Investment Board (“CPPIB”) acquired a 9.9% stake in Enstar. Our readers may recall that CPPIB also acquired Wilton Re in 2014.
Other notable transactions in the sector were the acquisition by Berkshire Hathaway’s MedPro Group of PLICO, Inc., a medical malpractice insurer in Oklahoma, and AmTrust Financial Services Inc.’s entry into an
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review
agreement to acquire Republic Companies, Inc. from Delek Group for $233 million and its acquisition of F&I product provider Warranty Solutions from Wells Fargo for $152 million. This last transaction, along with the sale of RCIS to Zurich later in the year, together represent the exit by Wells Fargo from the ownership of active insurance underwriting businesses, at least at the current time. Wells Fargo continues to operate its insurance agency and related businesses.
In late 2015, two new start-up property and casualty insurance fronting providers, Clear Blue Financial Holdings LLC (through its subsidiaries, Clear Blue Insurance Company and Clear Blue Specialty Insurance Company), and Spinnaker Insurance Company, were formed and each insurance company received an A.M. Best rating of “A-“. Each of these companies will offer fronting services that will enable traditional and non- traditional reinsurers to access the U.S property and casualty insurance market. These companies will compete with State National in this growing segment of the P&C market.
5. Other Potential Drivers of Future Activity a. Regulatory Changes
We believe that regulatory changes in the insurance industry may spur additional M&A activity. We discussed some examples of this above, such as the potential effect of SIFI designations and increased M&A activity evidently resulting from the implementation of the Affordable Care Act and changes to the federal crop insurance program in the United States. Other regulatory changes could similarly inspire M&A activity in the industry. One notable example is that developments with respect to the applicability to the insurance industry of certain of the anti-inversion rules could open the door to additional insurance M&A activity. We discuss these rules and related developments during 2015 in Section VII.C. below. Another example is the proposal by the U.S. Department of Labor of regulations relating to the identification of “fiduciaries” under the Employee Retirement Income
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