Yesterday, Verisk promised several additional changes and publicly committed to a “pure-play” insurance path after the private equity firm D.E. Shaw said the previous steps were not enough to reverse what it says is a “longstanding pattern of underperformance.”

“If Verisk is to reach its full potential and generate significant value for all of its shareholders, further change is necessary,” D.E. Shaw said in a March 17 letter to members of the Verisk board.

“We believe that with the right set of changes, including an unequivocal commitment to positioning the company as a standalone insurance-focused business, a commitment to organic growth acceleration and profit margin expansion within that business, and credible board oversight, Verisk’s stock price could appreciate by over 70%, which would equate to more than $20 billion of value creation for shareholders,” D.E. Shaw wrote.

In its response to D.E. Shaw last week, Verisk, which has subsidiaries in the insurance, financial services, real estate and energy sectors, noted that it sold its financial services business (for $515 million to TransUnion) and separated the role of chairman and chief executive officer. In January, Verisk also agreed to sell its 3E business, a part of its energy and specialized markets segment, for $950 million.

“These actions are contributing to significant progress in the company’s ongoing efforts to generate strong performance for shareholders, deliver mission-critical solutions to customers, and position the company for sustainable growth and success,” Verisk said.

Last month, Verisk also acted on an investor recommendation in announcing that Scott G. Stephenson, chairman, president and chief executive officer, will be retiring. Stephenson will be succeeded as CEO by Lee M. Shavel, who is currently chief financial officer and group president. At the same time, Mark V. Anquillare, currently chief operating officer and group president, will become president of Verisk.

Yesterday, Verisk stepped up its response, agreeing that becoming an insurance-focused data analytics firm is the best route and vowing to develop a plan to divest its remaining energy sector holdings by September. The firm has indicated this energy sector repositioning might include creation of a stand-alone public entity.

“As it continues its ongoing and comprehensive bottom-up review of Verisk’s non-insurance businesses and overall portfolio composition, the company has determined that moving towards being a global insurance-focused data analytics solutions provider represents the optimal path towards enhancing shareholder value,” Verisk said in a statement.

Underperformance

D.E. Shaw’s analysis shows Verisk’s organic revenue growth has missed the 7%-8% benchmark in each of the last six years. Also, over the same period, Verisk shareholders have experienced profit margin declines while information services peers with similar business models expanded margins by well over 100 basis points annually.

The private equity firm said that Verisk has acquired several non-core businesses that have distracted management and diluted the quality of Verisk’s insurance assets. It cites the example of Verisk’s Wood Mackenzie acquisition, which it says has generated only a 4% return on invested capital. Wood Mackenzie is a data analytics firm for the energy, chemicals, metals and mining sectors.

D.E. Shaw said last week that Verisk had agreed to many of its recommendations privately, including to committing to becoming a “pure-play insurance business” through separation of all non-insurance assets; however it believes the most important changes had not been pursued. These other changes included forming an operations review committee to pursue a “no stone unturned” review of Verisk’s insurance business.

Ongoing Review

Yesterday Verisk said it is continuing an “ongoing and comprehensive bottom-up review of Verisk’s non-insurance businesses and overall portfolio composition.” It also committed to achieving margin expansion through “sustainable cost efficiencies” that reflect the focus on insurance and it nominated three new independent directors to its board.

Back to Its Roots

In remaking itself as an insurance-oriented organization, Verisk is going back to its roots in a way. Verisk was established to serve as the parent holding company of Insurance Services Office, Inc. upon the completion of the initial public offering in 2009. ISO was formed in 1971 as an advisory and rating organization for the property/casualty insurance industry to provide statistical and actuarial services, develop insurance programs, and assist insurance companies in meeting state regulatory requirements.

Verisk remains a leading provider of statistical, actuarial and underwriting data for the U.S. property/casualty insurance industry. However, over the past decade, Verisk has entered a number of new markets, placed a greater emphasis on analytics, and pursued acquisitions. Its acquisitions have included Data Driven Safety, ACTINEO, Jornaya, Franco Signor, FAST, BuildFax, Genscape and Keystone Aerial Surveys, Rulebook, PowerAdvocate, Sequel, LCI, Fintellix, G2 , Greentech Media, Validus-IVC, MAKE, MarketStance, Arium, Healix Risk Rating, The GeoInformation Group, Analyze Re, Risk Intelligence Ireland, Emergent Network Intelligence and 4C Solutions.

2021 Results

For the full year 2021, Verisk reported consolidated revenue growth of 7.7% and adjusted EBITDA growth of 6.8%. That quarter saw the impact of acquisitions including Jornaya, Data Driven Safety, Roskill and Whitespace. On an organic basis, Verisk grew revenue 5% and adjusted EBITDA 4.7%.

In its Insurance business, it reported 6.9% organic revenue growth and 6.5% adjusted EBITDA growth. The company said it “experienced exceptional new sales growth across the broad range” of insurance products including underwriting, claims, extreme events and international software and strong uptake for new insurtechs.

In discussing 2021 insurance results, CEO Stephenson said Verisk has been seeing see strong demand for its ESG-related services for corporate customers, including its country, climate and human rights data and analytics solutions. It grew its statistical agent database to support ratemaking, expanded its library of real-time images of damaged property in autos for claims settlement, expanded its data use rights for automated underwriting, analytics and subrogation and experience exponential growth in its small business database, “which should fuel future opportunities across the small business lines of Insurance.”

Anquillare, the incoming Verisk president, said on the year-end analyst call that Verisk enjoys a “great nurturing type of relationship” with insurtechs and that they have helped bolster new sales and growth.