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State Auto Financial (STC) to Divest Unit to Liberty Mutual

State Auto Financial Corporation STC along with Liberty Mutual Holding Company Inc. and State Automobile Mutual Insurance Company announced an agreement wherein Liberty Mutual Holding Company will buy State Auto Group. Pending approval, the transaction is expected to culminate next year. Pursuant to the agreement, State Auto mutual members will become mutual members of Liberty Mutual and the latter will purchase State Auto Financial for $52 per share in cash.

Headquartered in Columbus, OH, State Auto Group is an insurance holding company. The insurance subsidiaries of State Auto Financial are part of the State Auto Group.

Boston-based Liberty Mutual boasts being the sixth largest global property and casualty insurer based on 2020 gross written premium. The buyout will ramp up Liberty Mutual’s independent agent network and likely position it to be the second largest IA carrier in the United States. The transaction will add $2.3 billion in premium to Liberty Mutual’s portfolio along with State Auto's network of about 3,400 independent agencies across 33 states. The addition complements Liberty Mutual's domestic personal lines and small commercial business.

State Auto President and CEO Mike LaRocco stated, "We've become a digital provider of auto, home and business insurance while remaining fully committed to the independent agency system.” This transaction is thus a strategic fit for State Auto Financial.

State Automobile Mutual has also entered into a voting agreement with Liberty Mutual pursuant to which it has agreed to vote its 58.8% interest in State Auto Financial in favor of the merger.

Shares of Stewart Information Services have rallied 60.4% in a year, outperforming the industry's increase of 33.5%. Its solid Title insurance business and a sturdy financial position will help shares retain the momentum. State Auto Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Per Willis Towers Watson’s Quarterly Deal Performance Monitor and M&A Research Centre at The Business School, the insurance industry witnessed 674 deals for more than $100 million in 2020, much lower than the year-ago tally of 774 deals. Nonetheless, the stage looks set for the remainder of 2021 with reopening of the economy, optimistic growth outlook, sturdy capital level and a low rate environment (helping in borrowing funds at low coupon rate). Rob Kindler, Global Head of M&A at Morgan Stanley said, “All the elements are there for an active M&A market in 2021, from corporations looking for scale and growth to private equity firms and SPACs looking to invest capital.”

There have been mergers and acquisitions continually happening in the insurance space. Recently, Athene Holding Ltd. ATH along with Apollo Global Management (APO) agreed to purchase 15% stake in Challenger Limited. This marks Athene’s entry in the Australian market. Arthur J. Gallagher & Co. AJG recently acquired the remaining shares of Edelweiss Gallagher Insurance Brokers Limited from Edelweiss Financial Services Limited. Brown & Brown, Inc. BRO acquired substantially all Piper Jordan assets.


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