The Hartford’s Grab of Maxum Specialty ‘Smart Move’: Analyst

The Hartford’s plan to pay $170 million in cash for excess and surplus lines insurer Maxum Specialty is a “smart move” that should help it grow its small commercial lines unit by getting more into new industry classes, says an analyst.

Senior analyst Jay Sarzen, a member of Aite Group’s insurance team, commented on the Hartford’s (HIG) purchase of Maxum Specialty Insurance Group.

“Given the highly fragmented nature of the P/C world, there is a limit for HIG or any other carrier to finding growth in highly-penetrated industry classes, especially in small commercial. For many carriers such as HIG, growing will mean having to go broader,” said Sarzen.

According to The Hartford, Maxum will maintain its brand and wholesale distribution model and will be managed as a separate unit within The Hartford’s Small Commercial business.

Sarzen said an acquisition makes sense “even for a carrier such as HIG that previously had pointed to its lack of acquisitions as a badge of honor” because HIG did not have internally the underwriting expertise to go broader and because organic growth has been, and will likely continue to be, tough to come by.

“HIG management made the decision that purchasing the expertise would be the best way to attain its desire to be a ‘broader and deeper’ player in the small commercial segment,” said the financial research and advisory firm analyst.

While the deal is unlikely to have a major impact on HIG given that Maxum wrote only $157 million in premium last year and HIG’s small commercial unit writes about $3 billion on an annual basis, HIG’s distribution network of 10,000 agencies gives it an opportunity to grow this business line beyond the $157 million in premium, the Aite Group analyst said.

He said HIG increased its focus on writing errors and omissions policies last year, sending “a signal that it had to move beyond its core focus on business owners’ policies, workers’ compensation and commercial auto to meet the increasingly diverse needs of small business owners.”

The Maxum acquisition is “another significant step on that journey,” Sarzen said.