Altamont deal to buy California insurer Topa called off

Altamont Capital Partners and the parent of Topa Insurance Group will not go forward with their deal for Altamont to acquire the California insurer.

The acquisition of Topa was announced in August last year, in a move that was first revealed by this publication. 

The Calabasas, California-based insurer is currently owned by Topa Equities, a private family investment company in Los Angeles founded by John Anderson.

Under the agreement, the terms of which were not revealed, San Francisco-based private investment firm Altamont was to assume majority control with Topa Equities maintaining a minority equity stake in the business following the closing.

The collapse of the deal was noted by AM Best today while announcing it had removed from under review with developing implications the financial strength rating of A- (Excellent) and the long-term issuer credit ratings of “a-” of Topa and subsidiary Dorchester Insurance.

The ratings agency said the decision not to go forward with the deal was a “mutual agreement” between Altamont and Topa Equities.

Topa is under new leadership following the departure of former president and CEO John Donahue at the end of last year. Donahue’s resignation was revealed in December 2019, with the executive explaining the commute from the Bay Area to Southern California had been difficult on his family.

Donahue, who had led Topa since April 2014, re-emerged as president of E&S broker MJ Hall in January this year. 

Michael Day took over at Topa on an interim basis and was confirmed as the permanent president and CEO earlier this month. 

AM Best today assigned a negative outlook assigned to Topa’s ratings. 

This reflects challenges the group faces to improve operating results in the near term given the potential for further adverse reserve development in the commercial auto liability line and ongoing expense pressures. 

“Topa has reported consistently negative underwriting results and low overall operating profitability over the past five years, and the group is expected to produce an additional underwriting loss in 2020,” AM Best commented.

The ratings agency noted that management has implemented a number of actions to improve profitability in recent years, including purchasing an adverse development cover effective the start of 2019, exiting underperforming business and undesirable classes, implementing rate increases, increasing quota share reinsurance and aggressively managing tail risk. But AM Best said “there remains a level of execution risk within the strategic initiatives”.

Private investment firm Altamont has made a number of insurance investments, including Accelerant Holdings, Embark General and Kuvare Holdings. 

In January it announced that Joe Zuk had joined as an operating partner focused on its insurance investments. Zuk, who had been at catastrophe-focused MGA Orchid since February 2019, has a focus both on Altamont’s existing investments and on developing new platforms.

The calling off of the Topa acquisition is the second collapse of a (re)insurance acquisition in recent days. 

On 12 May the $9bn deal for Covéa to buy PartnerRe fell through after the Bermudian reinsurer’s Italian parent Exor said that the French mutual had tried to renegotiate terms. Covéa explained it could not contemplate the acquisition at the terms agreed in light of the “current unprecedented conditions and significant uncertainties threatening the global economic outlook”.