Charlotte, N.C.-based Bank of America Corp. is acquiring the Balboa Insurance Group as part of the deal announced today to acquire Countrywide Financial Corp., Calabasas, Calif., in a $4 billion stock transaction.
Balboa's financial strength rating, because of problems with its parent company, has been under review since last August by A.M. Best Co. The rating agency said in the wake of the acquisition the status was now “under review with developing implications.”
Countrywide, a residential mortgage lender, as a result of weakness in the subprime mortgage and real estate markets, has reported $282 million in net losses for the first three quarters of 2007 on $4.9 billion in revenue, down from $2.1 billion in net income on $8.7 billion in revenue for the comparable period in 2006.
But Bank of America said it will be getting an organization that still managed to originate $408 billion in mortgage loans in 2007 in spite of the turmoil.
The deal has been approved by the boards of Bank of America and Countrywide, and it now is subject to approval by regulators and by Countrywide shareholders.
Countrywide's insurance segment, based in Irvine, Calif., sells insurance and reinsurance. Balboa, has three property-casualty insurance operating units–Balboa Insurance Company, Meritplan Insurance Company and Newport Insurance Company and Plano, Texas-based Newport E&S.
The companies write insurance products that protect the collateral on loans–also known as collateral protection insurance. They work with financial institutions offering lender-placed automobile and property coverage, and place coverage through general agents and independent retailers as well.
Balboa Group ranked as the 15th most profitable property-casualty insurance group on National Underwriter's third annual Profit Leaders rankings last year, qualifying for the spot with a 12-year average combined ratio of 95. The listings are based on average combined ratios for the years 1995-2006 were calculated from NAIC data compiled by Highline Data, a data affiliate of NU.
According to NU's more recently published rankings based on premium size, Balboa Group ranked as the 65th largest group with $965.8 million in net premiums written in 2006.
The firm's Balboa Life and Casualty Group, the retail insurance unit, sells term life, credit life, and credit disability insurance as well as voluntary homeowners and automobile insurance and lender-placed property and automobile insurance.
Balboa Life also has a commercial insurance unit that sells employee benefits products along with property-casualty insurance to home builders, mortgage broker, bankers, real estate brokers and commercial property owners, the company says.
Another unit in the Countrywide insurance segment, Balboa Reinsurance Company, sells mortgage reinsurance.
The insurance operations at Countrywide generated $1.1 billion in net premiums during the first three quarters of 2007, up from $865 million in net premiums during the comparable period in 2006, according to Countrywide's 2006 third quarter filing with the U.S. Securities and Exchange Commission.
The insurance segment is reporting $429 million in pretax earnings for the first three quarters of 2007 on $1.2 billion in revenue, up from $245 million in pretax earnings on $942 million in revenue for the comparable period in 2006.
The Countrywide insurance segment employed about 2,280 people during the third quarter.
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Allison Bell
Allison Bell, a senior reporter at ThinkAdvisor and BenefitsPRO, previously was an associate editor at National Underwriter Life & Health. She has a bachelor's degree in economics from Washington University in St. Louis and a master's degree in journalism from the Medill School of Journalism at Northwestern University. She can be reached through X at @Think_Allison.
