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On June 9, Allstate (NYSE: ALL) announced a deal by which it will acquire from CNA (NYSE: CNA) its personal lines auto and homeowners business. The transaction was valued at $1.2 billion, of which much will be paid in future royalties for the continued use of the CNA brand name over six years. The deal included ownership of various company shells in which rate filings are in force, and a transfer of CNA's management team and claim reserves. CNA's personal lines book of about $1.7 billion is presently written through 3,800 independent agents in 43 states. Allstate will operate a new business "CNA Personal Insurance" that will continue utilizing the CNA brand name.
What do you think?
Allstate estimated that this move will boost Allstate's annual premium through independent agents to approximately $3 billion. Allstate's new independent agency initiative will be headed by Bruce Marlow, formerly COO Progressive (NYSE: PGR). Marlow will report directly to Allstate's Chairman, not to its existing personal lines management. Allstate estimated that this acquisition will make Allstate the third largest provider of personal lines insurance through independent agents. Allstate already sells its "Deerbrook" brand of insurance through independent agents. They say this "bolsters our goal to become multi-channel and multi-brand." Source: Allstate press release.
Over on CNA's Yahoo! Message Board, "drafted_68" says: "Now they can whip some products into shape to gain a share of the $7 Billion small commercial market by undercutting CNA, Hartford, Travelers, Safeco, ad infinitum, using the agents they've gained from CNA for personal lines distribution, to complement its exclusive agency sales force."
How likely is that, in your opinion?
At the Allstate Yahoo! Message Board, questions arise as to what Allstate is buying when CNA's independent agents control the customers, and can move them to other carriers, unless Allstate can match or beat the incentives offered by competitors.
Does the 6-year payout royalty provide Allstate sufficient protection from a mass exodus of CNA's agents?
What do you think?
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