(Bloomberg) — Zurich Insurance Group AG agreed to buy MetLife Inc.’s U.S. property and casualty business in a $3.94 billion cash transaction, extending its reach in the world’s largest economy.
Zurich’s subsidiary Farmers Group Inc. and Farmers Exchanges, which the insurer manages, will fund the purchase jointly, the Swiss company said in a statement on Friday, Dec. 11.
Zurich will gain a nationwide presence in the U.S. and access to MetLife’s distribution channels to 3,800 companies for 10 years, the company said. That may help boost revenue at the unit, where gross written premiums declined 3% to $15.3 billion in the third quarter.
The purchase adds to one of the busiest years for insurance deals since the financial crisis, as companies seek to emerge as the strongest players when the coronavirus pandemic subsides. The takeover of RSA Insurance Group Plc and Allstate Corp.’s largest acquisition ever have helped push transactions this year to nearly $93 billion before the Zurich deal, according to data compiled by Bloomberg.
Citigroup Inc. and Morgan Stanley advised Zurich on the transaction, and MetLife was advised by Rothschild & Co.
The MetLife deal is expected to contribute to Zurich’s earnings from the first full year after its completion in the second quarter and deliver a return on investment of approximately 10% from 2023, according to the statement. The business includes 2.4 million policies and a reported $3.6 billion net written premiums in 2019. The transaction is still subject to regulatory approvals.
“After this acquisition, we will be in the top 10 in every one of the 50 American states, which wasn’t the case before,” Chief Executive Officer Mario Greco said on a conference call. MetLife’s strength in the U.S. Northeast and Midwest will add to Zurich’s presence in the South and West regions, he said.
The deal allows MetLife to simplify its operations and pursue its strategy of expanding in the U.S. healthcare market, the company said separately. MetLife recently announced the acquisition of Versant Health, which will make it the No. 3 vision care provider in the U.S., according to the statement.
Farmers Exchanges, which is owned by its policyholders and managed by the insurer, intends to free up capital for the purchase by increasing the amount of reinsurance it uses, Zurich Chief Financial Officer George Quinn said on the call.
Adjusted earnings for the MetLife P&C business fell 68% to $18 million in the third quarter. The slump was driven by the highest catastrophe losses in nearly a decade, linked to a tropical storm in the U.S. Northeast and severe windstorms in the Midwest.
Once the transaction is completed, Zurich expects its capital position to remain strong. The company had a Pro-forma Swiss Solvency Test ratio at around 190% as of the third quarter. Integration costs are expected to be about $220 million, which will be spread over the next three years.
Last month, RSA Insurance Group Plc accepted a takeover offer of $9.6 billion from Canada’s Intact Financial Corp. and Danish Insurer Tryg A/S in what was the highest premium offered in a European insurance deal for a decade. In the US, Allstate Corp. agreed in July to buy National General Holdings Corp. for about $4 billion in cash in the auto insurer’s biggest acquisition ever.
The biggest deal so far this year was Aon Plc’s agreement in March to buy Willis Towers Watson for about $30 billion.
— With assistance from Lananh Nguyen, Lucca de Paoli, Patrick Winters and Jan-Henrik Förster.