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W. R. Berkley returns to M&A with $15.5M shell deal

The following article was published by SNL Financial on May 24, 2016. Merger & Acquisition Services, Inc. and its affiliates acted as the sole financial advisor to Daimler AG on the sale of Intrepid Insurance Company to W.R Berkley Corp. By Tim Zawacki

Five years after German automaker Daimler AG last attempted to sell dormant U.S. property and casualty insurance unit Intrepid Insurance Co., a buyer with some experience purchasing clean shells and other entities that do not involve legacy underwriting risks has agreed to acquire the Farmington Hills, Mich.- based company for $15.5 million.

The Michigan Department of Insurance and Financial Services on May 20 obtained a Form A filed by W. R. Berkley Corp. unit Berkley Insurance Co. in which it seeks regulatory approval for its acquisition of Intrepid Insurance.

The deal value consists of Intrepid Insurance’s statutory capital and surplus at closing plus $5.5 million, according to the filing. Although Intrepid Insurance maintained surplus of $29.6 million as of March 31, Berkley Insurance said in the Form A that it expects that amount to be $10 million when the deal closes.

Intrepid Insurance had $33.8 million in assets and $4.2 million in liabilities as of March 31. Its surplus consisted of

$10 million in common capital stock, $4.5 million in gross paid-in and contributed surplus, and $15.1 million in unassigned surplus.

The existing officers and directors of Intrepid Insurance will resign at or around the time of closing, and Berkley Insurance plans to re-domesticate the company outside of Michigan by the end of 2016, according to the filing. An exhibit to the Form A containing the acquirer’s proposed plan of operation for Intrepid Insurance was excluded from the documents released to the public, but a W. R. Berkley spokeswoman said the transaction would provide additional flexibility to the company.

Intrepid Insurance maintained licenses to operate in 45 states and the District of Columbia as of March 31, according to its most recent quarterly statement. It was not licensed in California, Connecticut, Massachusetts, New Hampshire or New Mexico.

The company was formed in 1999 to provide commercial auto physical damage insurance for nonfranchised auto dealers. It was a subsidiary of what was then known as DaimlerChrysler Insurance Co., a provider of floorplan insurance to Chrysler dealers that financed their inventory through the automaker’s captive finance company.

When Daimler sold a majority stake in Chrysler Corp., including the captive finance company and DaimlerChrysler Insurance, to Cerberus Capital Management LP in 2007, it retained Intrepid Insurance. The insurer, in turn, entered portfolio transfer and 100% quota share reinsurance agreements with the then-renamed Chrysler Insurance Co. Intrepid Insurance stopped issuing and renewing policies, effective Jan. 1, 2010, and the M&A committee of Daimler, which is best known as the manufacturer of Mercedes-Benz vehicles, determined in March 2010 to actively market the insurer for sale.

That process appeared to culminate with the February 2011 entry of a letter of intent with a prospective acquirer that ultimately did not pan out. S&P Global Market Intelligence learned that the proposed transaction had been terminated at the request of the unnamed buyer in May 2011.

In the meantime, Chrysler Insurance Co. had been excluded from a transaction whereby Toronto-Dominion Bank acquired the assets and liabilities of Chrysler Financial. It was renamed CorePointe Insurance Co. and, in March 2015, sold to AmTrust Financial Services Inc.

In contrast to AmTrust, which has emerged as one of the leading acquirers in the P&C space and considers purchases of books of business and operating companies to be a core competency, W. R. Berkley has focused heavily on organic growth, particularly through startup ventures. The company said in its most recent annual report that it started 44 of its 51 operating units.

“Acquisitions oftentimes have a more immediate impact on reported earnings but inherently bring about questions of balance sheet risk and cultural fit,” Chairman William Berkley said in his latest annual letter to shareholders.

Shell deals by their nature should not raise concerns regarding either reserve adequacy or culture, however, and

23. R. Berkley has a few of them to its credit over time. Admiral Insurance Co. purchased North Pointe Casualty Insurance Co., now Berkley Assurance Co., in January 2011 in a deal valued at $23.1 million. In 2007, W. R. Berkley acquired Investors Guaranty Life Corp., which now operates as Berkley Life & Health Insurance Co., from UnitedHealth Group Inc. The widely licensed Investors Guaranty Life had been part of Oxford Health Plans Inc., which UnitedHealth purchased in July 2004.

Additionally, W. R. Berkley reported that it purchased an aviation systems company in 2015 for $8 million; a specialty P&C distribution company in 2014 for $83 million; and a supplier of parts, systems and logistic support services for military aircraft operations for a total of $86 million in separate transactions in 2012 and 2013, as well as a business that owned a London office building in 2011 for $251 million.

R. Berkley last bought an active U.S.-domiciled insurance underwriter in 2007 when it purchased CGH Insurance Group, the parent of American Mining Insurance Co. William Berkley said following the completion of that deal that he was “very confident” in American Mining’s management and reserve levels, features that served to distinguish the target from other transactions he had reviewed around that time.
But both then and now, it would appear that the company’s preference remains to build rather than buy given William Berkley’s perspective that the “real economic return” associated with a successful startup venture is “far greater than would be achieved from an acquisition.”

ABOUT MERGER & ACQUISITION SERVICES, Inc.

Merger & Acquisition Services, Inc. is a specialist advisory and financial services Firm to the insurance and reinsurance industry, with offices in New York, Connecticut, Georgia & Cayman Islands. Founded in 1999, the Firm and its affiliates provides investment banking and insurance consulting services globally, including; merger & acquisition advisory, capital raising, valuations, program placement/fronting, and reinsurance advisory. Merger & Acquisition Capital Services, LLC., a registered broker-dealer and member FINRA / SIPC, is an affiliate of Merger & Acquisition Services, Inc.

To learn more about Merger & Acquisition Services, visit https://maservices.com.

Sep 29, 2016

Intrepid Insurance had $33.8 million in assets and $4.2 million in liabilities as of March 31. Its surplus consisted of

$10 million in common capital stock, $4.5 million in gross paid-in and contributed surplus, and $15.1 million in unassigned surplus.

Shell deals by their nature should not raise concerns regarding either reserve adequacy or culture, however, and

R. Berkley last bought an active U.S.-domiciled insurance underwriter in 2007 when it purchased CGH Insurance Group, the parent of American Mining Insurance Co. William Berkley said following the completion of that deal that he was “very confident” in American Mining’s management and reserve levels, features that served to distinguish the target from other transactions he had reviewed around that time.
But both then and now, it would appear that the company’s preference remains to build rather than buy given William Berkley’s perspective that the “real economic return” associated with a successful startup venture is “far greater than would be achieved from an acquisition.”

ABOUT MERGER & ACQUISITION SERVICES, Inc.

To learn more about Merger & Acquisition Services, visit https://maservices.com.

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W. R. Berkley Returns To M&A With $15.5M Shell Deal

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