Farmers CEO: 21st Century Buy Will Put Company in Position to Cross Sell

LOS ANGELES, Jul 01, 2009 (A. M. Best via COMTEX) -- AIG | Quote | Chart | News | PowerRating -- Farmers Insurance Group Chief Executive Officer F. Robert Woudstra said the acquisition of American International Group's 21st Century Insurance Cos. as well as its direct and independent agent personal automobile business will allow Farmers to "expand its customer reach" while becoming the third-largest personal lines insurer in the United States.

"The key is they (21st Century) sell a monoline product such as auto, which will allow us to cross sell additional personal lines products," Woudstra said in an interview. Farmers said it completed its $2 billion acquisition of the AIG companies -- the largest acquisition in Farmer's 81-year history, Woudstra said.

"This is another vehicle to access more customers," he said. 21st Century policyholders will now be able to speak with Farmers agents.

Farmers said 21st Century is the third-largest direct writer of auto insurance. Farmers, a subsidiary of Zurich Financial Services Group, provides auto, home, business, specialty and life insurance as well as financial services. It will be the top writer in California, Woudstra said.

Farmers will sell the regulated insurance businesses downstream for $1.4 billion to the Farmers Exchanges, which are managed, but not owned, by Zurich. Based on A.M. Best State/Line data, Farmers had $8.88 billion in 2008 net written private passenger auto premium in the United States, ranking fifth, while AIG had $3.65 billion, to rank ninth. The combined $12.54 billion unit would surpass Geico's $12.52 billion and Progressive's $11.68 billion (BestWire, April 16, 2009). "Strategically, this is something we knew we needed to do," Woudstra said of the acquisition. The companies bought from AIG have more than 2.4 million customers in 49 states and Washington, D.C., said Farmers in a statement. Woudstra said the purchase allows Los Angeles-based Farmers to reach across the United States into other markets, including the East Coast, which was "a key target market" for growth of the Farmers brand.

The acquisition also boosts its position in the direct sales channel, which claimed 18% of the U.S. insurance market in 2006, compared with 7.7% in 1997. Farmers intends to maintain the 21st Century brand for direct business. In a statement, Woudstra welcomed 21st Century CEO Tony DeSantis, calling the two companies a "perfect strategic business fit."

21st Century had been one of several significant assets AIG was looking to off load, as it attempts to pay back loans made under its $182.5 billion rescue plan from the Federal Reserve and U.S. Treasury. In preparation for a deal ? which does not include AIG's Private Client Group, specializing in personal lines and umbrella coverages for high-net-worth individuals ? AIG moved in November to rebrand its AIG Direct business as 21st Century, the name the formerly independent company had when AIG took control (BestWire, April 16, 2009).

According to an AMB Credit Report, 21st Century Insurance Cos. posted a $39.1 million profit in 2008 after a net loss of $10.3 million in 2007. Direct written premiums dropped to about $1.15 billion from $1.32 billion in 2007 and the group's combined ratio was 113.5 in 2008. The group employs about 6,000 people, and reported $2.7 billion in direct sales premium and $900 million in premium sold through independent agents.

Both the Farmers Insurance Group and Zurich Insurance Co. have current Best's Financial Strength Ratings of A (Excellent). Most AIG insurance companies currently have a Best's Financial Strength Rating of A (Excellent) with a negative outlook.

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)

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