Zurich to Buy Wells Fargo Crop Insurer for Up to $1.05 Billion

23 Dec 2015 | Author: | No comments yet »

CompaniesZurich Insurance spends $1bn on US agricultural insurer.

Zurich Insurance Group AG agreed to buy a Wells Fargo & Co. crop insurance business for as much as $1.05 billion as the Swiss company puts to work excess cash left over from a separate takeover bid that it abandoned earlier this year.The FINANCIAL — Zurich to acquire RCIS, one of the leading providers of agricultural insurance in the United States and one of the leaders in the U.S. crop insurance market.

The Swiss insurer, whose chief executive quit earlier this month, will buy Rural Community Insurance Services from Wells Fargo, the US financial services group, as part a strategy of expanding its commercial insurance businesses, writes Ralph Atkins. 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. Zurich is acquiring the RCIS business for $675m plus the amount of excess capital in the RCIS business when the deal closes, which is expected to be $375m.

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. This long term working collaboration has provided Zurich with a deep understanding of the crop insurance industry, the exposures in the crop program and RCIS as a business.

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? 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 transaction value of around USD 675 million represents deployment of part of the group’s USD 3 billion excess capital, which, as Zurich has previously stated, will be invested in the business or returned to investors by the end of 2016, according to Zurich. “Zurich continues to prioritize investments in distinctive positions, investing in the businesses and customer segments where we see the best opportunities for profitable growth. 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. With a national network of more than 4,000 agents, RCIS conducts business in all 50 U.S. states, providing risk management for more than 130 varieties of crops on more than 90 million acres.

Wells Fargo stepped up that affluent-investor strategy in October with a deal to exclusively recruit brokers from Credit Suisse Group AG CS -1.07 % ’s U.S. private bank. 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.

Mike Foley, CEO North America Commercial and Regional Chairman of North America said: “Working in an industry with a high exposure to weather conditions, most farmers wouldn’t think of operating without some form of crop insurance. These products and services help America’s agricultural producers to stay competitive and be more innovative, as well as to have the financial security to stay in business and go on to plant the next season. 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.

Zurich’s customers include individuals, small businesses, and mid-sized and large companies, including multinational corporations, in more than 170 countries. In North America, Zurich is a leading commercial property-casualty insurance provider serving the global corporate, large corporate, middle market, specialties and programs sectors through the individual member companies of Zurich in North America, including Zurich American Insurance Company.

In New York, life insurance and disability coverage is issued by Zurich American Life Insurance Company of New York, a New York domestic life insurance company.

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