Allstate to Acquire Esurance, Answer Financial in $1 Billion Deal to Expand Online Presence

Copyright:	(c) 2011 A.M. Best Company, Inc.
Source:	A.M. Best Company, Inc.
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Allstate Corp. has agreed to acquire Esurance and Answer Financial from White Mountains Insurance Group Ltd. for $700 million plus tangible book value, in a move to expand its online presence and gain market share from Progressive Corp. and Geico.

The acquisition is expected to have a total price of about $1 billion when it concludes in the fall, said Allstate, which will fund the purchase with cash.

The acquisition makes sense strategic and financial sense for Allstate, said Chairman, President and Chief Executive Officer Thomas J. Wilson during a conference call, because of improved marketing effectiveness and the ability to leverage Allstate's pricing and claims capabilities.

Esurance is the third-largest provider of online automobile insurance quotes after Geico and Progressive, according to Allstate, and targets technology-savvy consumers who shop online.

As of the first quarter, Esurance had 545,000 policies in force, while Answer Financial, an agency which offers auto, property and motorcycle coverage from 20 carriers, had 347,000 policies in force. Over the past five years, Esurance has more than doubled policies in force and grown premiums on average 20% a year, Allstate said.

Wilson, who said both companies are good growth platforms, said Allstate plans to keep both the Esurance and Answer Financial brands, which will operate independently. Allstate will keep the senior management teams, including 30-year insurance-industry veteran Gary Tolman, Esurance's president and CEO.

Allstate said the acquisition will allow it to appeal to all customers, those who want the personal attention of an agent, and those who are "self directed" and prefer to do online comparison shopping or have choice among providers.

White Mountains said it expects the sale will increase its adjusted book value by approximately $80 per share.

In late-morning trading on May 18, shares of Allstate (NYSE: ALL) were at $32.25, down 0.49% from the previous close, while shares of White Mountains (NYSE: WTM) were at $391.19, up 13.88%.

The Allstate Insurance Group currently has a Best's Financial Strength Rating of A+ (Superior). Esurance Insurance Group currently has a Best's Financial Strength Rating of A- (Excellent).

(By Diana Rosenberg, senior associate editor, BestWeek)