With deal, a new Super Regional Personal Lines Carrier in the Northeast emerges
Heritage Insurance Holdings, Inc., a Florida-based property and casualty insurance holding company has announced its decision to acquire the Narragansett Bay Insurance Company in a deal worth $250 million. Based in Rhode Island, the Narragansett Bay Insurance Company (“NBIC”) is a coastal homeowners-only insurance company focused on the Northeast with a presence in Massachusetts, Rhode Island, New York , New Jersey and Connecticut. With the acquisition of this regional company, Heritage Insurance is aiming to become a super regional personal lines carrier with the combined entity expectations to exceed over $900 million in gross premiums written.
What Heritage and NBIC’s President & CEOs have to say…
In commenting on the acquisition, Heritage Insurance President and CEO Bruce Lucas was excited by the prospects of this acquisition and the possibilities it holds for his company.
“We are very excited to join forces with NBIC, a seasoned company with a strong track record and talented management team. Completing this acquisition is the next critical step in executing our geographic diversification strategy. Post-transaction, we expect approximately 45% of our revenue to be generated outside of Florida, and Florida Tri-County personal lines policies will represent only approximately 7% of all total insured value, further hedging against assignment of benefits volatility.
We will also look to capitalize on the opportunity to expand the commercial residential expertise we have cultivated in our current markets to the Northeast. In 2018, we expect an approximately 50% increase in gross premiums written and net income as a result of the transaction. The new products, partnerships and bundled products that we will gain from the NBIC business make this transformative acquisition an important step in our continued growth. We look forward to working with NBIC’s employees and agents for years to come.”
On NBIC’s part, President and CEO Todd Hart has this to say:
“NBIC has demonstrated strong and consistent financial performance over the past several years, and has grown to be a premier provider of homeowners insurance,” said Todd Hart, CEO of NBIC. “We strongly believe that joining forces with Heritage will complement and strengthen our business, and position us to better serve our agents and policy holders.”
More details on the terms of the deal
Heritage will acquire NBIC for $250 million, with the deal expected to officially close in the fourth quarter of 2017. The official close of the transaction will be subject to the customary closing conditions of a transaction of this size, including the required regulatory approvals. The transaction already has been unanimously approved by both the board of directors of
both Heritage and NBIC.
As for how the deal with be financed, according to the official company announcements, the cash component of the deal will be financed, in part, with cash on hand. This will include proceeds from the Company’s senior secured notes, which were issued in December of 2016. In addition, the company also says that it will undertake an offering of convertible senior notes, coupled with a concurrent share repurchase subject to market conditions.
How the stock market viewed the deal
The stock market did not take too well to the proposed acquisition by Heritage of NBIC. After Heritage announced the acquisition and the terms of the deal became known, its publicly-traded stock dropped 15% in one day. Some attributed the sudden swoon in Heritage’s stock to the substantial amount of goodwill involved in the transaction and the financing terms of the acquisition diluting stockholder equity. The chart to the right shows the drop of Heritage’s stock on August 11.
In a show of support to his company, the Chairman and CEO of Heritage Bruce Lucas invested $254,760 to buy 22,000 shares after the stock had dropped. He paid an average price of $11.58 per share. Before the announcement, the shares had been trading as high as $13.45.
How does this affect the Massachusetts marketplace?
Our readers may remember that Heritage’s subsidiary, Heritage Property & Casualty Company, entered the Massachusetts marketplace in the summer of 2015. With both NBIC and Heritage having a presence in Massachusetts, it is only likely that they will expect to grow their market share in Massachusetts—one of the largest insurance marketplaces in the county.