Ladies and gentlemen, thank you for standing by, and welcome to Allstate's acquisition of National General Holdings Corp. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. We would like to ask you to please limit yourself to one question and one follow-up. You may get back in the queue as time allows. I would now like to introduce your host for today's program, Mr. Mark Noble. Please go ahead, sir.
Thank you, Jonathan. Yesterday, following the close of the market, we issued a press release announcing Allstate's pending acquisition of National General Holdings Corp. After prepared remarks by our Chair, President, and CEO, Tom Wilson, our Chief Financial Officer, Mario Rizzo, and President of Property-Liability, Glenn Shapiro, we will have a question and answer session. The call will last 30 minutes so we are finished before the market opens. We will not be covering current operating results, so please hold those questions for the second quarter earnings call. We have posted a slide presentation for use in today's discussion that can be found on our website at allstateinvestors.com. As noted on the first slide, our discussion today may contain forward-looking statements about Allstate's operations.
Allstate's results may differ materially from these statements, so please refer to our 10K for 2019, the slides, and our most recent news release for information on potential risks. Now I will turn it over to Tom.
Well, good morning, and thank you for joining us on short notice. Why don't we start on slide two? Allstate's expanding our personal lines market share position through the acquisition of National General for $4 billion or $34.50 per share. The acquisition is attractive for many reasons. First, it is consistent with our strategy, which is to increase market share and personal property liability, with our share increasing to 10%. As you know, we distribute through Allstate agents directly to customers and then through independent agents today. We will essentially be doing a reverse merger of our independent agent businesses into National General, which has a good technology platform, agency interfaces, and a management team that has substantial experience in acquisitions. By combining our independent agent businesses into the National General platform, we will lower costs, have better technology, and a stronger operating platform.
It will create a top five personal insurance carrier serving independent agents. It also gives us a strong presence in a higher risk of what we all call non-standard auto insurance. Allstate's expertise will give us an opportunity to further leverage National General's independent agent relationships by broadening the product offering to include standard auto and home insurance. Financially, this will be accretive to adjusted net income or earnings per share and return on equity in our first year. The transaction has no impact on Allstate's existing share repurchase program. For those of you not familiar with National General, it primarily provides property liability and accident health policies through independent agents. Total premiums written were $5.6 billion, and they had net income of $314 million last year.
They underwrite a wide range of property liability products, of which auto insurance is $3.3 billion, most of which is non-standard risk. The accident health business has two components, group stop-loss protection for small businesses, and then individual short-term health policies. National General is also the second largest lender-placed business provider in the U.S. that's selling homeowners insurance largely through financial institutions. The management team's been together for about a decade, and they've completed 18 acquisitions successfully during that time. Let's start by going through the terms of the acquisition, then we'll go through the strategic and operating logic. If you start with slide three, Allstate will acquire 100% of National General's holdings in an all-cash transaction.
The acquisition price of $4 billion will be paid in $34.50 per share in cash at closing and a special dividend prior to close of up to $2.50 a share, of which $1 is contingent on 2020 earnings. That represents a multiple of 11.9 times the 12-month earnings and 1.78 times book value. It is a 64% premium to the common share weighted average over the last 30 days. The acquisition will be funded with $2.2 billion of combined cash resources at Allstate National General and $1.5 billion of new Allstate senior debt. The debt issuance will have a minimal impact on Allstate's other credit ratios. National General's board has approved the transaction. There's a breakup fee of $132 million. The transaction is, of course, subject to National General shareholder approval and regulatory approval.
We have a voting agreement with entities that control about 40% of the National General shares to support the transaction. We expect the deal to close in the first quarter of 2021. Let's move to slide four. We'll start with Allstate's strategy, then we'll walk into what this does for independent agents. Our strategy, as you know, is to increase property liability, market share, and expand protection offerings, as shown by the two ovals on this slide. As you know, a key initiative in that upper oval is our Transformative Growth initiative. That strategy has three components, increase customer access, improve the value proposition, and invest in marketing and technology. We're expanding the direct sales of the Allstate branded auto insurance using Esurance capabilities.
The direct pricing will be lower than through the Allstate agents, reflecting a lower cost structure and the absence of advice and local support. We will sunset the Esurance brand and shift that advertising to the Allstate brand. We're making really good progress on that. We're combining operations. Glenn's team is working hard on it, and we're also working hard on reducing our costs, which will improve the customer value proposition. We also have two independent agent-focused businesses in the upper right role, Encompass and Allstate Independent Agents, and we'll talk a little bit more about those in a minute. This transaction accelerates our strategy to grow those businesses and creates a top five personal lines insurance carrier in the independent agent channel. It also expands our presence in the non-standard auto insurance and offers the opportunity to sell standard auto and homeowners insurance to more independent agents.
National General's platform will also lower costs, improve technology, and bring an experienced management team onto the Allstate team. Let me turn it over to Mario, who will provide an overview into the IA market, our businesses, and National General in more detail. He'll discuss how the combined organization will make us a stronger competitor. Mario will come back and give you a view as to what it does financially, and we'll open up to your questions.
Thanks, Tom. National General primarily distributes personal lines insurance through independent agents, which is a large source of industry premiums, as you can see on slide five. The personal lines insurance market consists of companies leveraging one or more of a combination of three primary distribution channels, including direct-to-consumer, exclusive agency, and independent agency distribution. The independent agency channel is approximately $125 billion of total premiums or 35% of the total market as of year-end 2019. The growth in this channel has been in line with the overall industry and remains highly fragmented, as only four insurers have more than 5% market share. We think this provides a significant growth opportunity. Leading companies in this channel compete through ease of use with simple technology platforms, sophisticated and stable pricing, a broad product offering, geographic diversification, and broad distribution.
If you turn to slide six, you can see that Allstate currently competes in this channel with two businesses, Encompass and Allstate Independent Agents. Encompass is a separate market-facing business that focuses on packaged auto and homeowners insurance with IA distribution largely in the Eastern U.S. Allstate Independent Agents are utilized to sell Allstate-branded products in geographies not well-suited to Allstate exclusive agents, such as small rural communities. Allstate writes about $1.7 billion of insurance through IAs, as you can see on the bottom of the slide, which represents less than a 1.5% market share. Premium growth has been flat to declining as we have focused on profitability, and returns have increased. Let's focus on National General's strengths and capabilities, starting with slide seven.
National General wrote $5.6 billion in gross premium and had $5.2 billion in total revenue in 2019 from a broad product suite, including personal lines, auto and home, motorcycle, recreational vehicle, accident and health, and lender-placed insurance, as you can see on the upper left. Auto insurance represents approximately 60% of total premiums, with a significant presence in the non-standard auto market, primarily sold through more than 42,000 independent agencies. Accident and health insurance is focused on group stop-loss coverage for small companies and individual products offered through a network of more than 46,000 independent agents, owned distribution entities, wholesalers, and employers. National General is also the second-largest lender-placed insurance provider in the U.S. This collection of broad-based products generates attractive margins with $314 million of net income and an overall return on equity above 16% in 2019. Slide eight dives deeper into the property and casualty business.
National General writes roughly $4.4 billion in property and casualty premium. This includes a $3.3 billion auto book and $1.1 billion homeowner book. The auto product processes are tailored to profitably grow in the higher-risk non-standard auto market, including advanced pricing, underwriting, and fee revenues to balance margin and growth. 75% of the auto premiums are non-standard, and their expertise in this business expands the market breadth of Allstate and Encompass, who have historically focused on standard auto insurance risks. National General's homeowners insurance business focuses on standard policies and packaged policies for high-net-worth customers and is diversified across geographies in the U.S. Their fully integrated, simple, and scalable technology platforms lowers costs, improves profitability, and enables National General to efficiently integrate acquisitions.
This has led to a property and casualty business that has a consistent track record of profitable growth, as you can see in the chart on the lower right portion of this slide. Slide nine focuses on National General's broader portfolio of well-run businesses. The accident and health business has shown significant growth over time and primarily operates in 2 segments, small group stop-loss protection and individual products. The small group business targets and serves customers similar to Allstate Benefits. These products are sold through independent agencies and direct, representing approximately 5% of total National General premiums and generating favorable margins of approximately 30% over the last three years. The individual products consist of short-term medical insurance, largely sold to individuals in between employment, and supplemental coverage for individual risks such as accident, AD&D, or critical illness plans.
Individual products represent approximately 6% of total National General premiums and generated favorable margins of over 16% over the past three years. The lender-placed insurance platform was acquired in 2015 and generates approximately $350 million of premium annually, representing the second-largest platform in the U.S. The industry-leading technology, full suite of product breadth, and comprehensive risk management capabilities creates a competitive advantage to serve clients of all sizes. This business also has good risk-adjusted return margins. Now I'll pass it over to Glenn to discuss the combined strengths of Allstate's independent agency offering and National General.
Thanks, Mario. Let's turn to slide 10. National General will become Allstate's independent agent platform and will significantly improve our competitive position in the IA channel. The acquisition generates cost synergies while building a platform to drive profitable growth. Encompass business will be merged into National General, leveraging their experience and skill in seamlessly integrating acquisitions, and the National General executive team will lead that integration. Our Allstate independent agent relationships transition over time to leverage new products launched through National General with minimal disruption to customers and agencies. We'll achieve significant expense savings from scaling operations, that'll begin in year one. The acquisition creates a top five independent agent carrier when combining National General with our Encompass and Allstate independent agency presence, as you can see on the bottom left. We'll be able to provide a strong national alternative to other major companies serving the IAs.
We'll expand distribution access significantly with more than 42,000 National General locations, combined with over 10,000 Encompass and Allstate IAs. We'll also benefit from process consolidation, including management of the investment portfolio and improved combined economic capital requirements. On the lower right, you can see that personal lines premiums are increased to over $36 billion, and the percentage of premiums coming from IAs doubles to 15%. Moving to slide 11. The combination of these three businesses creates a much stronger IA business for Allstate by providing value for customers and independent agents. This slide illustrates how combining the organizations provides value across four dimensions: product, distribution, technology, and analytics. From a product standpoint, the combined organization will have industry-leading breadth and capabilities.
In auto, for example, National General's deep non-standard auto knowledge and breadth when combined with Allstate's expertise in scale and standard auto, will provide the full suite of products for customers and agents. From a distribution standpoint, we'll have broad coverage of the independent agent market with existing appointments of National General and Encompass, along with the national account and alternative distribution partners that both companies work with. National General has an excellent agency-facing technology that'll be used across the combined entity. Their policy and claims platform are scalable, which will allow us to retire the Encompass technology platform, Allstate's broad technology capabilities will help keep that contemporary. Lastly, the combined organization will have leading data and analytics capabilities.
With the strength we create by combining the product, the distribution, the technology, and the data, this new collective organization is going to be much greater than the sum of its parts. With that, I'll turn it back to Mario to discuss the financial impacts of the acquisition.
Thanks, Glenn. Let's turn to slide 12 that is going to provide further insights on the compelling valuation and efficient financing of the acquisition. The acquisition price of $34.50 represents a 64% premium to the volume weighted average stock price over the last 30 days. The earnings multiple is 11.9 times the last 12 months' earnings, and book value multiple is 1.78 times, which reflects National General's meaningful earnings and low relative trading multiples. Slide 13 provides the impact on Allstate's overall financial results. We expect high single-digit earnings accretion in the first year post-close. Adjusted net income return on equity is expected to increase by about 100 basis points. These impacts anticipate cost synergies but do not include the incremental revenue growth opportunity that exists through the combined companies.
We are primarily using deployable capital and senior debt issuance to fund the acquisition, and there will be no impact on our current $3 billion share repurchase program, which we expect to be completed by the end of 2021. The expected outcomes of the acquisition from a financial standpoint are comparable to an increased share repurchase program. However, it also enhances our long-term growth potential by creating a scaled presence in the large and growing independent agent channel. With that context, let's open up the line for your questions.
Certainly. Ladies and gentlemen, if you do have a question at this time, please press star then one on your touchtone telephone. If your question has been answered and you would like to remove yourself from the queue, please press the pound key. As a reminder, please limit yourself to one question and one follow-up. Our first question comes from the line of Greg Peters. Your question please.
Good morning. I guess what I would like to start off with just the level of integration that already exists between Allstate and Encompass, and what I am thinking about is the use of analytics, claims capabilities across the entire footprint, and you talked about the capabilities of the business you are acquiring and how that might look going forward.
Let me start, Greg, and then Glenn might want to jump in as well. First, Encompass is a separate technology stack. It's got its own product management platform. It's got its own agency, relationship management, some systems, it has its own claim system. Everything's separate. That we obviously leverage our expertise in targeting claims to help drive that business and that's profitable. That said, the technology stack is a barrier to both flexibility and improved profitability. By using the National General platform to basically acquire Encompass, we've put ourselves in a much better position to grow independent agent business. Glenn, is there anything you'd like to add to that?
Yeah, the only thing I would add is that this accelerates a strategy of integrating the IA channel for us because, the alternative was to do more integration of the AIA and Encompass business, which was sort of on the plate for us to do, but we were minimally integrated at this point. This really accelerates that and allowing us to do it as more of a reverse integration.
Great. Thank you. I have a follow-up question. I'm going to assume that the integrated services platform relates primarily just to the Allstate brand operations, and you don't anticipate using that for the IA channel. Coupling that, just curious about the difference between the standard or preferred customer of Encompass versus the non-standard customer of National General. It seems like there could be some differences in how you handle your customer experience there.
Well, Greg, let me do those in pieces. Let me start with the second one. On the customer experience, well, National General sells package policies today. They bought the old Powerbook. They know how to handle package policies differently than non-standard. There's different protocols, obviously, in terms of claims and payments and everything else. They know how to do that. We know how to do that. We can treat customers according to the policy they bought and the services we agreed to provide. We try to do a good job for everybody. I don't want to imply that just because you're a package policy, you get better service. If you're a higher risk driver, you're going to get great service from us. You get good service from everybody. That is not the thing at all.
The first part of your question was, help me give me a little more where you're trying to go there.
Related to the integrated services platform. I know that's an initiative that's rolling out across the Allstate brand. I just don't think that is applicable for the IA channel, just wanted to confirm that. Thanks again for your answers, by the way.
Well, integrated service, obviously is to try to reduce our cost structure, as we talked about, and you know well, reduce our cost structure in the Allstate channel to pay for work done centrally cheaper, and eventually just done away with by changing the policy and increasing self-service. Glenn's pretty far along in that. We're signing up agents as we go to do that. Right now, it's not a part of what we might do for agents, I would say that Encompass has done it for agents for a while, or a certain percentage commission they'll pay the service for you. I'm aware we'll be in the future. We're working in that. Our goal is to increase share with agents when we adapt to their business model.
All right. Thank you.
Thank you. Next we'll move on now to Michael Phillips, your question, please.
Thanks. Good morning, Tom. Just curious, I guess, on your comment on this. It's obviously no secret that the exclusive distribution channel has lost share over the years. You guys have done a lot of work recently to kind of combat that through maybe your extended product offerings, through your strategic growth initiatives, rebranding and what you're doing with Esurance and phasing that out. I guess, should we think of this acquisition as really a kind of a commitment to the NatGen non-standard auto book, or is it maybe another way to kind of gain another foothold in that IA channel, and maybe expand past what Encompass could have ever done to help alleviate those market share struggles from the exclusive distribution system?
Yeah, Mike, I'd say it's the second one first, and the first one second. This is really our opportunity to build a really strong competitor in the independent agent channel. We've always had, as Mario and Glenn talked about, two efforts there. Those are pretty small, I mean, relative to the rest of the world, it's pretty big, but if you looked at the other competitors in that space, we did not have as good a business as we felt was reflective of Allstate's Esurance capabilities. First and foremost, this puts us squarely in the front, with good technology. I think that this product line is something that some agents struggle to place that kind of business, so you get a special place on their list, and we think we can use that special place to expand into standard auto and home insurance.
Their competitors have been expanding more aggressively in home insurance in the independent agent channel. We think we can take a run right at that. As it relates to non-standard, Allstate used to be a giant writer. We used to write as much non-standard on an annual basis as we did standard auto. We exited that business in the early 2000s. We do a fair amount of it through Esurance on a direct basis today, so we know the product. Our technology systems aren't as good on the way you have to structure the fees and everything else in the Allstate brand. We may be able to use the National General technology to sell more non-standard through the Allstate agencies.
Well, we've done some of that in the past, two or three years ago, we started using them with our LeadVantage platform to broker some business through Allstate agents, it worked. We think there's the opportunity to expand on this profile as well. That is primarily the second reason. This is us making a strong run at the IA channel.
No, great. Thanks, Tom. That's very helpful. I guess, second question on NatGen's specific auto. You talked about the margins overall for the company, but their auto margins are a little bit different. I guess, do you think their current margins on their non-standard book are where you'd like to be? Any kind of improvement on that specific book and how you think about maybe improving the margins on the non-standard book as they currently have?
Glenn, do you want to take that question?
Sure. They've actually performed very well in the auto space. When you look at the net combined ratio, we know that non-standard business operates a little bit differently, where you have sort of a gross loss in combined ratio, and then there's a fee structure to that business. When you net everything out, they've delivered very good returns, running in the lower part of the 90s from a combined ratio standpoint. They're smart business people, and I think we'll look forward to just continuing those type of returns. I think expanding on even the earlier question is, this really creates a full stack. We're talking about non-standard because that's something they're big in now. This gives us a full stack IA capability that really puts us on par, better with anybody else in the industry to go serve the IA unit.
Thank you. Appreciate it.
Thank you. Our next question comes to the line. Jimmy Bhullar, your question, please.
Hi. Good morning. Just first, just a clarification on when you talk about accretion, are you talking about accretion on a net income basis or just on operating? In the past, I think when you've done deals, the intangible amortization is not part of the operating earnings.
Mario, do you want to answer that question?
Yeah. The accretion that we referred to is on an adjusted net income per share.
Without being the number for any intent, right? Consistent with how you've done certain to the others.
Correct. It's the adjusted net income metric versus the net income metric.
All right. Do you see any potential sort of conflicts of interest or regulatory or publicity issues in the lender-placed business when you're also operating in the voluntary homeowners market in the same geo?
No. For those of you who have been hanging on as insurance a long time, lender-placed did not have a great reputation before the financial crisis. It got what I would call regulatorily increased oversight and enhanced since that time. It's a good business. It earns good returns. We think that's, we didn't talk much about it in this presentation, but they're the number 2 player. There's a lot of room to grow there. The next biggest carrier, the biggest carrier is multiple their size. We think there's a really good opportunity with their service, our capital, our homeowners expertise, and our relationships with big people to pick up a bunch of share, just as we did with SquareTrade, with Walmart people and others.
Yeah. My point was more on if you have an Allstate customer who is a voluntary customer that gets placed on force-placed coverage, the terms, pricing, conditions, and what's covered under the two policies is very different. In the past, there have been issues around the sort of value proposition from a consumer standpoint for the lender-placed product.
I don't think there'll be an issue there. The situation I'm talking about, people are not paying for their Esurance, and their lender's saying your house needs to be insured. We'd be happy to take their money either way.
Okay. Then just lastly on the deal, the multiples are obviously not that high because it traded at a low multiple, the premium is clearly high, and that's been a concern that investors have had on some of your past deals as well. Just any thoughts on how you arrived on the premium?
Okay. Well, yes, you're absolutely right in terms of the way the multiples are. Let me start back with prior deals because somebody did bring that up. I don't quite understand that because if you, just in chronological order, we bought an identity protection business about a year and a half ago, and it's growing, and we like it, and it's really part of our connectivity strategy with our customers. SquareTrade we bought, of course, three and a half years ago. We paid $1.4 for it. The multiples were really high, but it had 30 million policies at the time. Now it's got 100 million. We've sort of run the table on the big carriers or big retailers by taking up Walmart. We're going to roll out Home Depot this year. The results for SquareTrade are at the high end of what we thought was possible.
I don't go back through all of our deals, but we feel pretty good about where we're at. As it relates to other alternatives. We have a long track record of managing capital, whether that be share repurchases, using preferred stock buybacks. We took this acquisition to the exact same process. We're purchasing the company, as you mentioned, at about 12 times earnings. Allstate trades kind of in that range. We're obviously below that right now. We kind of trade in that range. We looked at three options acquiring National General. We looked at as is, just our existing strategy, but then use the capital and the additional leverage to upsize our current $3 billion program to about the size as if we had bought National General, on top of the $3 billion.
We said, okay, well, we could even sell it to Encompass, get out of the IA channel, use that money and the extra capital and leverage to buy back shares. When you look at those numbers, the earnings per share accretion that you mentioned is about the same. The ROE for just getting smaller is slightly higher, but it's only slightly higher, and that's really because you're using leverage. You get about the same financial metrics. You get more long-term profitable growth, a stronger competitive position. It really wasn't that hard a decision in terms of capital. We think this is great sense for our shareholders.
Okay. Good luck with it. Thanks.
Thank you. Maybe we're at time. Let's do one more question, then we'll wrap up, Jonathan.
Certainly. Our final question then for today comes from the line of Mike Zaremski. Your question, please.
Hey, good morning. My questions have to do with how you think about the non-standard market. If I think back to, and you mentioned, Tom, the Esurance acquisition, I believe there was a bit of non-standard customers you acquired turned over as you guys integrated the Esurance. I'd also mention Allstate used to have a bigger non-standard presence. Can you talk about how National General defines a non-standard marketplace? Is it a tougher market to do business in? Is retention lower in that market? I just want to better understand how to think about the non-standard market.
Let me start with the Esurance and then, Glenn, you can make a couple comments about National General. Esurance, you're right. When we bought Esurance, it had about $800 million of premium. I think we paid about $1 billion for it. It had a large focus on what we would call no prior or non-standard customers, no prior Esurance. Today, it's about two and a half times that size. It still has a large presence in that market. We don't give out the percentages, but it still writes a lot of business in the no prior segment. We understand that business. It's been profitable for us. The business, even though it turns over more, more people shopping, it's growing, so at over $2 billion of our premium, we feel good about our ability to be in that business.
We didn't have the capability to do that in the independent agent channel, however. I think we just didn't have the technology, but we will eventually build it to do it in the Allstate channel. That's just work to do. We didn't have the capability to do it in the independent agent channel. A large portion of the business ends up in the independent agent channel because they are more price sensitive, they pay more, and they prefer to have more people shop for them. Glenn, do you want to talk about the non-standard business and just making sure it's profitable and growing?
Yeah. It's a good question because in Esurance, I don't think you'd ever just buy a book and pay the kind of multiple and everything for it, because in any Esurance, even our standard business turns over. You're buying a system, the analogy I would draw is you've got car rental companies that make a good living on shorter-term rentals, and you've got ones that make a good living on longer-term leases. There's no question that in the non-standard market, the retention level is lower and the turnover is faster. I don't think of it as just buying simply an existing book of customers. We're buying an entire system to where they're really good at bringing those customers on.
They're really good at getting the right price on those customers, at charging the right fees at the right intervals, and turning that system into a profitable enterprise. While any given customer they have today may or may not be with them a year or two, whatever point in time you pick, the system replenishes itself, and they have a really good sales muscle and a great distribution force.
Okay. Thank you all. What this does for us is it gives us a much stronger position in the independent agent business. We'll get good long-term profitable growth out of it. We'll get immediate earnings accretion and ROE accretion. It's an excellent use of capital, even when you compare it to a share repurchase. Thank you all, and we'll talk to you soon on second quarter earnings.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.