American Financial to Buy Summit - Analyst Blog


In an effort to expand its market presence as a leading workers' compensation carrier in southeast U.S., property and casualty insurer, American Financial Group, Inc. ( AFG ) announced its plans to buy Summit Holdings Southeast, Inc. and its related companies from Liberty Mutual Group.

The all-cash deal valued at $250 million is expected to see light by second-quarter 2014. American Financial will fund the deal from its cash pile and no external funding will be called for. However, it will end up investing $400 million in Summit which includes capital contribution at the closure of the deal.

Post the acquisition, Summit will continue to retain its name and will continue to function under the Summit brand as a unit of Great American Insurance Group.

Subsequent to the company's announcement of the acquisition, rating agency Moody Investors Service of Moody's Corp. ( MCO ) sprung into action.  The rating agency affirmed the Baa1 senior debt rating for American Financial Group, and the A1 insurance financial strength (IFS) ratings of the company's property and casualty operations led by Great American Insurance Company (GAIC).

The 'A2' IFS rating of American Financial's life insurance subsidiary, Great American Life Insurance Company (GALIC), and the 'A3' IFS rating of AFG's California workers' compensation subsidiary, Republic Indemnity Insurance Company were also reaffirmed. However, concerns relating to execution risk caused Moody's to change the outlook to negative from stable on GAIC and GALIC.

Summit's niche presence in the workers' compensation market and a superior track record fits well with American Financial. We believe that the acquisition will be accretive to the company's growth over the medium-to-long term.

While American Financial carries a Zacks Rank #3 (Hold), better-ranked stocks Allied World Assurance Company Holdings, AG ( AWH ) and Aspen Insurance Holdings Ltd. ( AHL ) with a Zacks Rank #1 (Strong Buy) are worth considering.

AMER FINL GROUP (AFG): Free Stock Analysis Report

ASPEN INS HLDGS (AHL): Free Stock Analysis Report

ALLIED WORLD AS (AWH): Free Stock Analysis Report

MOODYS CORP (MCO): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: AFG , AHL , AWH , MCO

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