Truist Pursues Sale of Minority Stake In Insurance Segment; Deal Highlights Undervaluation of Shares

As had been rumored for several weeks, Truist has indeed been pursuing a sale of a minority stake in its insurance business. The deal announced Feb. 16, 2023, values the common equity of the insurance business at $9.75 billion, with Truist also issuing preferred shares tied to the business segment worth $5 billion.

We believe the deal accomplishes two main things. First, it makes the value of the insurance business a bit more obvious. Insurance brokerages trade at higher multiples than traditional banks, and the deal should bring some of that value to light. This brings greater transparency to the market value of a business unit that was otherwise a bit hidden within the confines of a bank holding company.

The second key thing we feel the deal accomplishes is that it brings in outside capital and expertise to help further the growth of the insurance unit. Additional rollup deals, as the unit participates in the consolidation of the insurance brokerage industry, were likely, in our view, and this deal brings in additional support for that strategy and other organic growth options.

We’ve long highlighted the strength and uniqueness of the insurance business for Truist, viewing it as one of the items supporting our narrow-moat rating of the bank. As such, we do not plan to change our narrow-moat rating or our $57 per share fair value estimate for the bank at the is time. We believe this deal should help support the continued growth of the insurance business, and that the valuation implications of the deal support our contention that shares of Truist are likely a bit undervalued at today’s prices.