No. 7 Farmers to buy No. 18 MetLife's auto insurance business in $4B deal

Farmers announced Friday it had purchased MetLife’s auto and home insurance business.

The nearly $4 billion deal involves both Farmers Group, that is owned by Zurich Insurance, and the Farmers Exchanges. The Farmers Exchanges are three reciprocal insurers of Farmers policyholders. Zurich owns the Farmers Group, which provides administrative support for the Farmers Exchanges.

“Buying of MetLife Auto & Home is a unique chance to accelerate our growth and gives us a substantial presence in all 50 states,” Farmers Group CEO Jeff Dailey said in a statement. “MetLife’s distribution channels complement our existing strength in the exclusive agent channel, deepen our presence in the fast-growing independent agent channel and supply us entry in to the worksite marketing channel using a leading platform, using the 10-year exclusive distribution agreement through MetLife Group Benefits.”

Here’s the way it works. Zurich said Friday it might buy the MetLife P&C business for $3.94 billion. Zurich will then immediately sell nearly all of it back to the Farmers Exchanges for $1.51 billion.

At no more your day, Zurch would be out $2.43 billion, while Farmers is going to be out $1.51 billion. Farmers expects the deal to close within the second quarter of 2021.

Zurich/its Farmers Group makes money by charging Farmers/Farmers Exchanges a percentage of gross premiums for handling services like underwriting on Farmers’ behalf.

However, Farmers/the Farmers Exchanges continue being responsible for claims, the Farmers brand, and policy sales, according to Zurich.

“The acquisition significantly boosts the potential for growth in the Farmers Exchanges and will further boost the share of Zurich's profits linked to stable fee-based earnings,” Zurich Group CEO Marco Greco said inside a statement. “Together using the continued increase in rates in commercial insurance, this transaction will strengthen our capability to achieve our 2022 targets.”

As we see clearly, Farmers turns into a bigger personal lines insurance player, while Zurich reaches collect more relatively low-stress, low-capital administrative fees.

Zurich expected its $2.43 billion stake to earn a 10 percent return on investment from 2023. It said it would pay the bill having a “roughly equal combination of internal resources and hybrid debt.”

Based on National Association of Insurance Commissioners data, MetLife was the country's 18th largest private passenger auto carrier in 2021. The Farmers Group ranked No. 7 and controlled 4 times MetLife's premiums, in line with the NAIC tallies.

MetLife posted $574 million in net written auto premiums within the third quarter of 2021. It reported more than $2.4 billion in net auto written premiums auto premiums for the whole year of 2021.

Farmers posted a lot more than $10.53 billion in written premiums in 2021. Add in MetLive’s auto business, and Farmers vaults past Liberty Mutual to become the No. 6 auto insurer in the country. .

Zurich said the deal would also elevate Farmers significantly in certain U.S. markets when one considers all personal lines . In the Northeast, Farmers will vault from 24th to 10th place having a 4.1 % share. It’ll go from 10th to sixth devote the Midwest having a 4.2 percent share.

Though those stats describe all personal lines, 67 percent of MetLife’s net written premiums come from auto insurance. So body shops in those regions should give consideration.

The deal also lets Farmers sell insurance through “the employer distribution channel using a leading worksite marketing platform” for the first time, according to Zurich. In theory, this pitches Farmers products to a lot more than 3,800 employers’ workplaces. MetLife also contributes another 3,000 independent agents who weren’t selling Farmers insurance already, Zurich said.

Farmers has not yet replied to an inquiry Friday about its future plans for that separate Farmers Guaranteed Repair Program and MetLife CARE direct repair programs.