Intact to acquire U.S. specialty insurer OneBeacon Insurance Group for US$1.7 billion

Intact Financial Corporation has announced that it intends to acquire OneBeacon Insurance Group, Ltd., a specialty insurer in the United States, for US$1.7 billion.

Intact declared on Tuesday that it has entered into a definitive agreement and plan of merger pursuant to which it has agreed to acquire the specialty insurer, “creating a leading North American specialty lines insurer with over $2 billion in specialty lines premiums.” The transaction is expected to close in the fourth quarter of 2017.

Under the terms of the all-cash deal, OneBeacon shareholders will receive US$18.10 cash per common share, a 14% premium based on OneBeacon’s closing stock price on the New York Stock Exchange of US$15.89 as of May 1 and a 15% premium to the volume weighted average price over the last 30 days. This represents an aggregate cash consideration of approximately US$1.7 billion, or Cdn$2.3 billion, Intact said in a statement.

The acquisition “combines Intact’s leading commercial lines track record and deep data, claims and digital expertise with OneBeacon’s high caliber team and specialty lines capabilities,” Intact suggested. “The acquisition bolsters Intact’s Canadian business with new products and cross-border capabilities, and better positions Intact to compete with international insurers. Furthermore, this provides an additional growth pipeline to leverage Intact’s consolidation expertise in a fragmented specialty lines market.”

The transaction has been unanimously approved by the boards of directors of both companies and is subject to approval by OneBeacon’s shareholders.

The transaction is expected to be neutral to net operating income per share (NOIPS) in 2018 and generate mid-single digit NOIPS accretion within 24 months after close. Intact expects to also benefit from “top and bottom line growth opportunities resulting from broader geographic and line of business diversification.”

OneBeacon’s debt of approximately US$275 million will remain outstanding, the statement added. Intact has secured the conditional purchase of a reinsurance agreement pursuant to which a “major reinsurer” will assume 80% of any negative development in excess of US$74 million with respect to OneBeacon’s claims liabilities as at Dec. 31, 2016. The maximum amount payable by the reinsurer is US$200 million, subject to some exclusions and limitations.

Intact intends to finance the acquisition and related transaction expenses using a combination of $700 million of equity financing, approximately $700 million of excess capital and approximately $1 billion of financing comprised of bank term loans, medium term notes and preferred shares.

Goldman, Sachs & Co. LLC is acting as financial advisor to Intact. Skadden, Arps, Slate, Meagher & Flom LLP and Blake, Cassels & Graydon LLP are acting as Intact’s legal advisors, while McCarthy Tetrault LLP is acting as counsel to the underwriters in the bought deal subscription receipt offering.

“Today, we’ve taken an important step in building a world class P&C insurer,” said Charles Brindamour, CEO of Intact Financial Corporation, in the statement. “The addition of OneBeacon is creating a leading North American specialty lines insurer focused on small- to mid-sized businesses. OneBeacon is a strong strategic fit for Intact, with deep expertise in commercial and specialty lines, and shared values. We see significant growth potential from the combination of our specialty lines operations and we look forward to welcoming OneBeacon employees to the Intact family.”

Mike Miller, CEO of OneBeacon Insurance Group, added that they are excited to join Intact. “The opportunity to leverage Intact’s deep technical, financial and technology capabilities makes this combination the perfect next step in the OneBeacon journey. Together, we will accelerate our pursuit in creating a leading specialty insurer in North America. We look forward to working with our U.S. and Canadian independent agents and brokers to deliver market-leading capabilities to our targeted customers. Both companies are dedicated to ensuring a seamless transition and look forward to profitably growing our specialty portfolio going forward.”

Intact is the largest provider of property and casualty (P&C) insurance in Canada with over $8 billion in annual premiums. Supported by over 12,000 employees, the company insures more than five million individuals and businesses through its insurance subsidiaries and is the largest private sector provider of P&C insurance in British Columbia, Alberta, Ontario, Quebec, Nova Scotia and Newfoundland & Labrador. The company distributes insurance under the Intact Insurance brand through a network of brokers, including its wholly owned subsidiary, BrokerLink, and directly to consumers through belairdirect.

OneBeacon Insurance Group’s underwriting companies offer a range of specialty insurance products sold through independent agencies, regional and national brokers, wholesalers and managing general agencies. OneBeacon’s solutions target group accident and health; architects and engineers; commercial surety; entertainment; environmental; excess property; financial institutions: financial services; healthcare; management liability; ocean and inland marine; programs; public entities; technology; and tuition refund.