CBL to buy Affirmative for US$5.7M, gaining foothold in US insurance market
By Paul McBeth
March 24 (BusinessDesk) - CBL Corp wants to add US insurer Affirmative Direct Insurance Company in a US$5.7 million deal which would expand its global footprint to the world's biggest economy.
The Auckland-based credit surety and financial risk insurer filed a regulatory application to buy the US business, giving it a US insurance vehicle and licences to expand in the US, it said in a statement. Affirmative started running off its business since it stopped underwriting operations in 2007 and has no outstanding claims, and holds cash, investments, regulatory capital and current licences in 14 states.
“The US is the largest insurance market in the world and is one that we have been following for many years," CBL managing director Peter Harris said. "The opportunity to gain direct access to this market in a low-risk, controlled and manageable way when we are ready is one we don’t want to pass up."
The US beachhead comes hot on the heels of CBL completing its 94.5 million euro acquisition of France's Securities and Financial Solutions Europe SA (SFS) and continues a series of purchases since the firm listed on the NZX in 2015.
CBL was anticipating annual operating earnings growth of between 18 percent and 22 percent in calendar 2017, which was predicated on the annual contributions of SFS and UK tax investigation insurance provider Professional Fee Protection. The insurer posted a 27 percent increase in operating earnings to $76.2 million, which disappointed some in the market despite beating the firm's own prospectus forecast.
Harris said the company has already set up relationships in the US and expects to start writing a "small amount" of business before the year's out.
The acquisition will be funded by CBL's existing cash reserves and is subject to change of control approval from the State of New York Department of Financial Services, which is expected within the next four months.
CBL said Affirmative has enough capital write business for the first few years of operation without any capital injection and has no employees or employee liabilities. It will need US-resident independent directors who will be appointed once the purchase is completed. At that point, it will also adopt the CBL brand.
The NZX-listed insurer said it will provide product capacity, underwriting and claims management expertise, and managing general agents to write business until the US unit reaches enough scale that it can built its own US-based management structure.
"CBL will continue its established record of underwriting discipline and avoidance of being driven by top line revenue, which is often the norm in the US market," it said.
The shares rose 0.9 percent to $3.35, and have gained 37 percent in the last 12 months.