Truist’s partial sale of insurance unit paves way for growth, the CEO says

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Truist says it will invest the proceeds of the insurance deal in short-term securities and, over time, use the capital to expand its insurance business.

Chana R. Schoenberger

Truist Financial plans to sell a stake in its insurance brokerage subsidiary to a private-equity firm, a move that executives are touting as a way to fund future growth and boost earnings over time.

The Charlotte, North Carolina, company announced Thursday that it will sell 20% of Truist Insurance Holdings to Stone Point Capital in Greenwich, Connecticut, for $1.95 billion. The deal, which excludes Truist’s recently acquired insurance premium finance business, is expected to close during the second quarter of this year, pending regulatory approval, the company said.

Truist will invest the cash proceeds in short-term securities and, over time, use the capital to expand the insurance business organically and through acquisitions, possibly doing deals that are smaller in size as well as those that are “transformational,” CEO Bill Rogers told analysts Thursday.

“[Insurance] is a rapidly consolidating industry and we want to make sure that we’re highly competitive and the consolidator of choice,” Rogers said during a conference call to discuss the sale. “Whether transformation happens one deal at a time or whether it happens with a larger deal, I don’t know. Those will be things that we’ll consider. We’ve got a great partner” in Stone Point.

When the deal closes, the insurance unit will be overseen by a board of five, including four members appointed by Truist and one member appointed by Stone Point, Truist said. Mubadala Investment, the sovereign wealth fund of Abu Dhabi, and other unnamed co-investors are participating in the deal with Stone Point.

The announcement comes more than two months after The Insurer, a trade publication, reported that Truist was exploring the sale of up to 30% of its insurance brokerage division. Part of the rationale for thinking about a potential sale was to provide third-party validation of the value of the insurance business, which the company says the market has been underpriced in calculating the value of Truist’s stock.

The $1.95 billion price tag reflects an aggregate value of $14.75 billion for the insurance business, including a common equity value of $9.75 billion and $5 billion of intercompany preferred equity issued by Truist Insurance Holdings to Truist, the company said Thursday.

The sale is expected to boost Truist’s common equity Tier 1 capital ratio by 32 basis points and be 6% accretive to tangible book value by share, Truist said. The terms of the deal include allowing Truist to sell another part of the business at any time. Terms also permit Stone Point to ask Truist to explore a sale or initial public offering after six and a half years and, if there is no sale or IPO, Truist has the right to buy the 20% stake back at fair market value.

Last year, the insurance subsidiary accounted for 13% of Truist’s total revenue and 35% of its overall fee income, Truist disclosed in a presentation that it prepared in conjunction with the sale announcement. The division is the sixth-largest broker in the United States, based on 2021 US brokerage revenue of $2.9 billion, and employs more than 9,000 people across 250-plus offices.

The sheer size of the subsidiary makes it an outlier in the banking industry. Last month, during Truist’s fourth-quarter earnings call, Rogers said the company “love[s] the insurance business,” but did not directly comment on whether a sale was in the works.

Analysts on Thursday expressed somewhat mixed reactions about the sale. In a research note, RBC Capital Markets analyst Gerard Cassidy said he views the sale “positively, as selling a piece of Truist Insurance Holdings will finally establish a marker for the value of [the division].”

Analysts at Barclays Research noted that the deal “essentially creates a new ownership structure and currency which [Truist Insurance Holdings] can use to help drive both organic … and inorganic growth” by attracting and incentivizing talent and pursuing more acquisitions.

Others were more circumspect about the long-term value of the deal.

John McDonald, an analyst at Autonomous Research, wrote in a research note that “while the initial impacts look neutral to positive … questions remain about the go-forward strategy around Truist’s deployment of the capital generated … and how future insurance deals may be affected. “

In a research note, Fitch Ratings wrote that the sale should be “credit neutral in the near term,” but that a future sale of part or all of the rest of the business could “have implications for Fitch’s assessment” of Truist down the line .

“The capital-light, consistent and profitable nature of the [insurance] business delivers solid risk-adjusted returns that Fitch believes is difficult to replace,” the note said. The final analysis could hinge on how skillfully Truist deploys the proceeds of the sale, according to Fitch.

In the presentation materials, the company noted that the deal would bolster the insurance unit’s incentive program by improving its “ability to attract, incent, and retain top talent.”

Rogers, too, said one of the rationales for selling the 20% stake was the “currency” to attract talent.

As a whole, the deal “just increases the aperture for insurance deals and actually makes us even more attractive,” Rogers said on the call. “The key point is we have the strategic and financial flexibility” to grow the business in different ways.”

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