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Atlas Financial Divests Gateway, Focuses on MGA Business

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Atlas Financial Holdings Inc. divested stock, charter and state licenses of its indirect subsidiary Gateway Insurance Company (Gateway) to Buckle, which paid $4.2 million to the statutory liquidator of Gateway. The acquirer might pay another $0.5 million as additional purchase price depending on the number of insurance licenses of Gateway in full force and effect without restriction at the end of 2020. The transaction was announced in January this year. Shares of the company gained 187.7% in the Jun 17 trading session.

The divestiture is in tandem with Atlas Financial’s strategy to focus on its specialty managing general agency (MGA) business. This Zacks Rank #3 (Hold) underwriter of  commercial automobile insurance policies in the United States remains focused on generating EBITDA at the MGA level while attempting to lower risk and capital requirements related to traditional primary insurance company operations.

Buckle’s core business focuses on part-time transportation network company (TNC) drivers and complements Atlas’ focus on full-time drivers in the Livery, Paratransit, Taxi and TNC segments.  Thus, this buyout will leverage Buckle’s operations. Buckle, a technology-driven financial services company, plans to recapitalize on Gateway to support the writing of new and renewal insurance policies, including non-paratransit policies for AGMI.

Anchor Group Management Inc. (AGMI), Atlas Financial’s wholly owned MGA, will now commence transitioning non-paratransit business that meets agreed underwriting criteria as a general agent for Gateway. AGMI retains renewal rights to business AGMI produces for Gateway. It will focus on taxi, livery, limousine and full-time TNC drivers. Atlas subsidiaries have entered into a program framework agreement to provide other professional services to support Buckle and Gateway. Per this minimum three -year agreement, AGMI expects to generate up to $100 million in annual premium for non-paratransit business using Gateway as one of its insurance markets.  

Atlas Financial and Buckle aim to work together to identify additional opportunities to provide insurance solutions to the gig-economy sector with an emphasis on TNC drivers.

Atlas Financial believes its focus on MGA strategy and this strategic divestiture will build upon the progress it made in 2019 through previously announced arrangement for paratransit business with American Financial Group, Inc. (AFG - Free Report) and its National Interstate subsidiary. The transition of paratransit business by AGMI is expected to be completed by the end of November 2020.

Atlas Financial has been mulling strategic alternatives to strengthen its operations and enhancing shareholders value. This initiative will thus help garner benefit and help the company achieve its goals

Stocks to Consider

Some better-ranked companies from the same space are National General Holdings Corp and  Allstate Corporation (ALL - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National General, a specialty personal lines insurance holding company, provides various insurance products and services in the United States, Bermuda, Luxembourg and Sweden. Its earnings beat estimates in two of the last four quarters and missed in the other two, the average positive surprise being 5.68%.

Allstate provides property and casualty, and other insurance products in the United States and Canada. The company surpassed estimates in each of the last four quarters, the average positive surprise being 18.45%.

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