Allstate Buys Esurance
Allstate is buying Esurance and Answer Financial from White Mountain Insurance Group Ltd's for $1 billion. The acquisition of Esurance, which is the third–largest provider of U.S. online auto insurance quotes, will increase the company's online presence, which is a channel more popular among younger consumers. Esurance also sells directly through call centers, without using brick and mortar agent offices. Answer Financial, Inc. is a personal lines insurance agency that has both an online and brick and mortar model.
Allstate has historically relied on insurance sales through its agents but has experienced a decline in the number of policyholders in recent years. The company has also been adversely affected by the catastrophic losses experienced in the recent tornados and flooding primarily in the southern U.S. Esurance increased both the number of policyholders and premium rates in the first quarter of 2011.
Largest Publicly Traded U.S. Auto Insurer
Allstate is America's largest publicly traded auto and home insurer. Its stock price is up 5% over the past year, compared to 23% over the same period for the Dow Jones Industrial Average. Allstate's stock price was up 3 cents to $32.45, while White Mountain's shares rose $51.55 to $395.18 on May 18th after the acquisition was announced.
Boards of both companies have approved the deal but the deal is not expected to close until this fall, pending regulatory approvals. Allstate's A.M. Best financial strength rating of A+(Superior) and issuer credit ratings of "aa-" has not changed.
The move expands Allstate's distribution capacity in the growing direct insurance sales channels. Several of Allstate's major competitors such as Geico and Progressive rely primarily on direct channels. It also demonstrates the increasing shift of consumers buying insurance online.
