8-K: Hagerty to Acquire Consolidated National Insurance Company for $18.4 Million

Hagerty, Inc. is set to acquire Consolidated National Insurance Company (CNIC) for approximately $18.4 million, aiming to enhance its underwriting capabilities and expand its market reach.

Summary

• Hagerty, Inc. has agreed to purchase Consolidated National Insurance Company (CNIC) from Everspan Insurance Company for approximately $18.4 million.
• The acquisition is intended to establish a direct underwriting carrier model for Hagerty, allowing for better control of underwriting profits.
• The purchase price includes approximately $10 million for state licenses and $8 million for expected capital and surplus.
• This move is expected to reduce frictional costs and create more value for customers by leveraging Hagerty's brokerage platform.
• Hagerty plans to expand its product offerings to target the underserved classic and enthusiast vehicle market, particularly the post-1980 segment where penetration is currently less than 2%.
• The transaction is expected to close in the second quarter of 2024, pending regulatory approval from the Colorado Division of Insurance, which was requested on February 12, 2024.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook with a strategic acquisition aimed at improving profitability and market reach. While there are risks, the overall tone is optimistic and forward-looking.

Positives

• The acquisition will allow Hagerty to better control underwriting profits by establishing a direct underwriting carrier model.
• Reducing frictional costs will create more value for customers.
• The acquisition will enable Hagerty to expand into underserved segments of the classic and enthusiast vehicle market.
• Hagerty will be able to offer new products and coverage options.
• The company expects to drive high rates of written premium growth and retention of underwriting profits.

Negatives

• The transaction is subject to regulatory approval, which could delay or prevent the acquisition.
• There are risks associated with integrating CNIC into Hagerty's operations.
• The company may face unexpected costs or expenses related to the transaction.
• There is a risk of litigation or regulatory actions related to the transaction.

Risks

• The acquisition is subject to regulatory approvals, which may not be obtained on the anticipated timeline or at all.
• There is a risk that closing conditions for the transaction may not be satisfied.
• Changes in the anticipated timing for closing the transaction could occur.
• The agreement could be terminated due to unforeseen events or circumstances.
• The transaction could divert management's time from ongoing business operations.
• There is a risk of unexpected costs or expenses resulting from the transaction.
• The company could face litigation or regulatory actions related to the transaction.

Future Outlook

Hagerty anticipates closing the transaction in the second quarter of 2024, subject to regulatory approvals and the satisfaction of closing conditions. The company expects to drive high rates of written premium growth and retention of underwriting profits by expanding its product offerings and controlling underwriting profits.

Management Comments

• Hagerty aims to better control underwriting profit within Hagerty by incorporating a direct underwriting carrier model.
• The company intends to remove frictional costs to create more value for customers.
• Hagerty plans to widen the aperture with new products and new coverage offerings to fill an underserved segment of the classic and enthusiast vehicle market.

Industry Context

This acquisition reflects a trend in the insurance industry where companies are seeking to control more of the value chain by bringing underwriting capabilities in-house. This move allows Hagerty to better manage risk and potentially increase profitability, while also expanding its market reach.

Comparison to Industry Standards

• Markel acquired Essentia in 2012 to exclusively underwrite Hagerty US business, demonstrating a previous industry move towards vertical integration.
• Markel acquired 25% of Hagerty in 2019, further solidifying the relationship and the trend towards closer integration.
• Hagerty's move to acquire CNIC is similar to other insurance companies that have sought to establish their own carrier platforms to control underwriting and reduce reliance on third-party carriers.
• The focus on the post-1980 enthusiast vehicle market aligns with the industry's recognition of the growing value and potential in this segment.

Stakeholder Impact

• Shareholders may benefit from increased profitability and market expansion.
• Customers may experience enhanced value and new product offerings.
• Employees may see new opportunities as the company grows.
• Suppliers and creditors may see increased business activity.

Next Steps

• Hagerty will seek regulatory approval from the Colorado Division of Insurance.
• The company will work to satisfy the closing conditions for the transaction.
• Hagerty will integrate CNIC into its operations after the transaction closes.
• The company will develop and launch new products and coverage offerings for the classic and enthusiast vehicle market.

Key Dates

Keywords

acquisition, insurance, underwriting, carrier, classic vehicles, enthusiast vehicles, regulatory approval, premium growth, CNIC, Hagerty