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Arch Capital (ACGL) Unit to Expand in Middle-Market P&C Segment

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Arch Capital Group Ltd.’s (ACGL - Free Report) subsidiary, Arch Insurance North America, has finalized a master transaction agreement to acquire Allianz’s U.S. MidCorp and Entertainment insurance businesses. Valued at $450 million in cash, this strategic move underscores Arch's commitment to expand its footprint in the middle-market property and casualty segment. The acquisition, estimated to require approximately $1.4 billion in capital support, positions Arch as a significant player in this lucrative market space.

Enhanced Offerings and Market Presence

With the acquisition, Arch Insurance significantly bolsters its presence in the U.S. middle market, a key growth area for the company. Matt Shulman, CEO of Arch Insurance North America, highlights the transaction's potential to strengthen distribution relationships, broaden product offerings and enhance underwriting capabilities. Notably, the addition of Allianz's Entertainment business complements Arch Insurance's existing suite of specialty products, further diversifying its portfolio and market reach.

ACGL estimates the acquisition to be accretive to EPS and ROE beginning in 2025 with annual, incremental earned premiums of approximately $1.4 billion. This insurer also projects combined ratio and expenses to be higher in the near term as it invests in integrating the business. Also, post-integration, the business is expected to run at a long-term target of a low 90s combined ratio.

Impact on Workforce and Continuity

Approximately 500 professionals, including underwriters and claims specialists, from Allianz's MidCorp and Entertainment divisions are set to join Arch Insurance's workforce. Tracy Ryan, CEO of North America at Allianz Global Corporate & Specialty SE, expressed confidence in the transition, ensuring continuity for clients and partners. This acquisition not only expands Arch Capital's talent pool but also reinforces its commitment to maintaining a client-focused culture.

Strengthening Market Leadership

The transaction builds upon Arch Insurance's robust North America business, which witnessed double-digit top-line growth for five consecutive years. Nicolas Papadopoulo, CEO of Arch Worldwide Insurance Group, anticipates the combination of expertise, client relationships and employee talent to position Arch as a market leader in the specialty insurance arena. With a focus on collaboration and excellence, Arch Insurance is poised to pursue further growth opportunities and solidify its standing in the industry. The transaction is expected to be closed in the latter half of 2024, subject to regulatory approvals.

Price Performance and Zacks Rank

Shares of ACGL have gained 27.7% in the past year compared with the industry’s 17.6% growth. The company 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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Acquisitions in the Insurance Space

Assurant Inc. (AIZ - Free Report) , a global leader in lifestyle and housing solutions, has expanded its footprint in the UK market through the acquisition of iSmash, the country's top independent tech repair brand. This strategic move solidifies Assurant's position in the drop-in mobile equipment service and protection sectors. With the addition of iSmash, Assurant now boasts a combined network of 68 locations, including its existing Pocket Geek Tech Repair centers. This expanded presence, manned by highly trained tech repair specialists, firmly establishes Assurant as the premier destination for drop-in device repairs in the UK.

The Global Lifestyle segment has been putting up an impressive performance, reflected by its net premium and fee and other income CAGR of 11% from 2016 to 2023. Assurant has adopted inorganic and organic growth strategies to boost this segment. For 2024, the company expects Global Lifestyle's Adjusted EBITDA to grow, driven by both Connected Living and Global Automotive.

Arthur J. Gallagher & Co. (AJG - Free Report) recently acquired Specialty Risk Management Services, LLC, and its affiliate, Private Client Insurance Services, LLC, marking continued strategic expansion to drive growth.

Arthur J. Gallagher has an impressive inorganic story with several buyouts in the Brokerage and Risk Management segments. AJG has a strong merger and acquisition pipeline with about $350 million of revenues, associated with about 40 term sheets either agreed upon or being prepared. AJG continues to expect about $3.5 billion of capacity to fund M&A in 2024 using only free cash and incremental borrowings.

Marsh & McLennan Companies, Inc.’s (MMC - Free Report) Marsh McLennan Agency (“MMA”), a division of MMC’s Marsh business, recently closed buyouts of two middle-market agencies of Louisiana, Querbes & Nelson (Q&N) and Louisiana Companies. The twin buyouts are expected to strengthen the capabilities of MMA as well as solidify its presence significantly across Louisiana. The addition of Q&N is expected to bolster the business insurance and employee health and benefits offerings suite of MMA.

The acquisition underscores Marsh & McLennan's strategic inorganic growth approach, exemplified by various purchases across its operating units. These acquisitions have facilitated entry into new regions, expansion in existing ones, diversification into new businesses and the development of new segments. The prudent acquisitions position the company for sustained long-term growth.

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