Morgan Stanley Upgrades National General Following $315M Purchase Of CNIC

On Tuesday, Morgan Stanley issued a company note on National General Holdings Corp NGHC after the company announced the acquisition of Century-National Insurance Company. Following the news, Morgan Stanley upgraded National General to Overweight with a $23.50 price target.

The Acquisition

"We are excited about the addition of Century-National to our growing personal lines franchise,” National General Chairman and Chief Executive Officer Michael Karfunkel said in a statement to investors.

Related Link: Morgan Stanley Upgrades National General Holdings To Overweight

“[T]he Century-National book fits well with our goal of expanding the standard and preferred products in both homeowners and personal auto, as well as enhancing our ability to bundle these products together and improve customer retention. We expect to realize substantial benefits from transitioning CNIC to our state-of-the-art technology system, advanced analytics, comprehensive reinsurance structure, and shared services platform."

Kai Pan and Chai Gohil, analysts at Morgan Stanley, wrote, “Based on our accretion analysis, we estimate the CNIC acquisition could be 10 percent accretive to 2017e EPS [...] Over time, CNIC should expand NGHC’s platform to grow in standard and preferred homeowners/auto markets.”

Key Drivers And Headwinds Moving Forward

Morgan Stanley noted that expense management remains a key driver to the profitability of National General. Following the acquisition, National General plans to leverage Century National’s existing technology platform and reinsurance program to drive top-line growth, lower operating expenses and expand profit margins while providing a high-quality insurance line to their customers.

Analysts at Morgan Stanley did mention potential headwinds to National General including rising auto claim frequency due to higher miles driven by customers with low gas prices and an improving economy. While this trend could have an impact on National General’s margins, the company could pull ahead of competitors due to the synergies and operational efficiencies driven by the acquisition of Century National.

National General Holdings Corp last traded at $19.66.

Image Credit: Public Domain
Posted In: Analyst ColorNewsUpgradesPrice TargetM&AAnalyst RatingsTrading IdeasCentury-National Insurance CompanyChai GohilKai PanMichael KarfunkelMorgan Stanley
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