Zurich Insurance to Pay Up to $1.05 Billion for Crop Insurer

23 Dec 2015 | Author: | No comments yet »

Wells Fargo eyes insurance brokerage acquisitions.

LONDON — Zurich Insurance Group said on Friday that it had agreed to pay as much as $1.05 billion to buy the United States agricultural insurer known as Rural Community Insurance Services from Wells Fargo. Wells Fargo & Co (WFC.N) is restarting efforts to expand its insurance brokerage business through acquisitions after previously announced M&A aspirations did not pan out. Louis-based brokerage arm is offering bonuses to advisers next year if 75% of their clients have $250,000 or more in their accounts, according to a copy of the Wells Fargo Advisors 2016 compensation plan viewed by The Wall Street Journal. Laura Schupbach, evp and head of Wells Fargo Insurance, said she “hit the pause button” on plans to do deals after she determined when taking the reins of the business four years ago that existing businesses were not fully integrated after earlier deals over a period of about 15 years. Wells Fargo will also encourage its brokers to offload clients with less than $65,000 in assets to trainees and other professionals, according to the document.

Schupbach cited technology platforms and contracts with insurance carriers as examples of inconsistencies that have now been addressed across the bank’s 2500 person insurance brokerage and consulting unit. “We’re very interested in building out industry expertise,” Schupbach said on Tuesday. Zurich joins HCC Insurance Holdings Inc. and Maurice “Hank” Greenberg’s Starr Cos. in expanding into crop insurance to diversify risks and bet on long-term growth in demand for food.

To contact the reporters on this story: Katherine Chiglinsky in New York at kchiglinsky@bloomberg.net; Dakin Campbell in New York at dcampbell27@bloomberg.net To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net Elisa Martinuzzi The change is Wells Fargo’s latest push to compete with Bank of America Corp.’s Merrill Lynch, Morgan Stanley MS -3.66 % and UBS Group AG for clients who have millions of dollars in assets.

In terms of size of a deal, she said Wells Fargo would prefer to target larger companies as they are “used to serving clients with more sophisticated needs.” On the low end, Schupbach said “Could it be $20-50 million? HCC agreed last year to buy Producers Ag Insurance Group from CUNA Mutual Group, while Farmers Mutual Hail Insurance Co. of Iowa reached a deal to buy Deere & Co.’s crop-insurance unit. Maybe.” She declined to comment regarding the possible high end of the range and added that she can grow the business without acquisitions if necessary.

The purchase will give Zurich a 20 percent share of a highly-regulated market and result in “relatively interesting” cash flows, Vontobel analyst Stefan Schuermann wrote in a note Friday. Elaborating on those plans, Schupbach said Wells targeted the business for sale because it does not provide as much opportunity as the bank’s other insurance business lines to serve bank consumer and commercial customers. Foley, the chief executive of Zurich’s North American commercial business and regional chairman of its North American business, said in a news release.

The arrangement lets Credit Suisse U.S. brokers who are hired by Wells Fargo smoothly transition their practices and clients to Wells Fargo’s brokerage arm by early 2016. Advisers who don’t transition their smaller accounts will still receive a full payout—which could range from 22% to 50% of the total revenue an adviser generates—on those clients for the first 12 months. The payment for transitioning those clients and the bonus for higher-asset clients will be paid in the form of deferred compensation, the compensation plan says.

Wells Fargo brokers who serve a large number of small clients would be most affected by the changes, but the threshold and the firm’s approach is gentler than its peers. Merrill, for example, required brokers to comply with a small-household policy last year after instituting a $250,000 minimum account size on clients they could work with.

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