Argo Group International Holdings, Ltd. recently signed an agreement to acquire Ariel Re for $235 million in cash. The buyout is expected to be completed during the first quarter of 2017, subject to closing conditions.
Rationale of the Transaction
The buyout will enable the property and casualty (P&C) insurer to combine the success and strength, achieved individually by it and Ariel Re, to boost shareholder value. This buyout will not only further strengthen the acquirer’s long-standing relationship with Ariel Re but also improve its offering for its clients.
Ariel Re is well known as a global underwriter of insurance and reinsurance business. The acquired company has a team of proven insurance experts with in-depth domain experience, thorough research and development and creative thinking capabilities. According to Jose A. Hernandez, head of the acquirer’s International Business, these are “values and capabilities that align with those of Argo Group.”
The acquisition is a strategic fit for Argo Group. The acquisition will help the acquirer to leverage its London and Bermuda-based platforms through the addition of complementary lines of specialty business. Post acquisition, the P&C insurer will be equipped with a well-balanced portfolio mix of about 88% insurance and 12% reinsurance.
The buyout will enable Argo Group and Ariel Re to use their combined strength in prudent capital deployment in selected areas to generate maximum return and continued growth. In addition, the combination will create a market-leading business. As a result, the acquisition is expected to be significantly and immediately accretive to earnings and return on equity.
The transaction will diversify Argo Group’s business, which in turn, will improve the its capability of dealing with changes in market cycles. Also, the buyout will add new abilities that can be utilized across the organization, such as Ariel Re’s specific modeling and risk analysis tools. This should boost Argo Group’s already strong underwriting analytics.
Argo Group is renowned for enhancing its inorganic growth profile through prudent acquisitions. Through strategic buyouts the company continues to improve its underwriting services of specialty insurance and reinsurance products in the P&C market worldwide.
Currently, Argo Group carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks from the same space are Mercury General Corp. (MCY - Free Report) , NMI Holdings, Inc. (NMIH - Free Report) and Arch Capital Group Ltd. (ACGL - Free Report) . Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Mercury General is a P&C insurer that is engaged in writing personal automobile insurance in the U.S. The company delivered positive surprises in two of the last four quarters but with an average miss of 21.04%.
NMI Holdings offers private mortgage guaranty insurance services in the U.S. The company delivered positive surprises in all of the last four quarters with an average beat of 62.80%.
Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It delivered positive surprises in all of the last four quarter with an average beat of 9.27%.
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