Safe Auto revs up for IPO

Ohio-based non-standard auto insurer Safe Auto is preparing for an IPO in New York, The Insurance Insider can reveal. 

Sources told this publication that Safe Auto, which is privately owned, has retained JP Morgan and Bank of America Merrill Lynch (BAML) to advise. 

The board attempted to sell the business in 2016, with JP Morgan running a sale process, but the auction was ultimately called off. 

Safe Auto, based in Columbus, has been run by CEO Ron Davies, a former Allstate employee, since 2012. 

The insurer, which was founded in 1993, had a policyholder surplus of $137mn at the end of the 2017 fiscal year. 

Safe Auto’s pre-tax operating income has substantially grown over the past five years from $7mn in 2013 to $30mn in 2017.  

For the first nine months of 2018, pre-tax operating income was $25.7mn, a 28.7 percent increase from the prior-year period. 

The earnings of the group are not driven by the underwriting result and the insurer’s investment income is modest at only $5.6mn for the 12 months to 30 September. As such, it seems likely that Safe Auto’s earnings come from ancillary fees. 

Safe Auto has consistently run at an underwriting loss, with a combined ratio in excess of 100 percent in each of the last five full years. However, in the nine months to 30 September 2018 it eked out an underwriting profit with a combined ratio of 99.6 percent. 

In 2017 the insurer’s combined ratio was 101.1 percent, down from 105.3 in 2016. 

State Auto’s public listing would come amid a flurry of pending IPOs in the sector, including two in the US market. 

Program specialist ProSight is currently running a dual track sales process and IPO, and Goldman Sachs has been appointed to lead both processes. 

Watford Holdings, the owner of Bermudian hedge fund reinsurer Watford Re, has also filed paperwork in preparation to list its shares on the Nasdaq stock exchange. 

Reliance General Insurance Company also filed papers with the Securities and Exchange Board of India proposing an IPO earlier this month. 

The US non-standard auto sector has experienced a difficult decade, experiencing an average combined ratio of 106.5 driven in part by rising frequency and severity of claims, according to AM Best.  

However, that figure is currently improving due to aggressive rate increases taken by auto insurers in the past two years, according to AM Best. 

Best’s market segment report out December 2018 stated that combined ratio for private passenger non-standard auto insurers improved to 102.2 in 2017 compared with 107.9 a year prior. 

Safe Auto, BAML and JP Morgan did not respond to request for comment at the time of publication.