It appears Quebec has just about reached its limit, market concentration-wise, likely making the chances of more mergers and acquisitions in its property and casualty insurance industry more of an exception than the rule.
So suggested Mario Albert, president and CEO of the Autorité des marchés financiers, during a presentation at the recent National Insurance Conference of Canada in Quebec City.
Albert was careful not to shut the door on the possibility of future M&A activity in la belle province, although any such likelihood seems attached to a whole bunch of maybes, it depends and time will tells.
Quebec first inched - then leapt - toward what Albert calls the critical threshold of concentration with a few hefty deals in the last year or so.
He cited Intact Financial Corporation's acquisition of AXA Canada ($2.6 billion) in 2011, followed by JEVCO Insurance Company ($530 million) this year; and RSA Canada's purchase of L'Union Canadienne ($150 million). That deal propelled RSA into the Top-5 insurers in Quebec.
David Crozier, senior vice president of operations at Economical Insurance, commented in a presentation last November the Intact-AXA merger represented a larger shift in Canada's p&c marketplace than if Economical, Wawanesa Mutual Insurance Company and Gore Mutual Insurance Company were to all demutualize in the next year.
So? Does it matter if there are fewer big fish swimming in the p&c space of Quebec's pond? Is this a concern in similar pools across the country?
At the very least, Albert would say, it is a concern because of less consumer choice and competition.
The welcome waves initially associated with those big fish - for consumers, expanded offerings and available locations, options and services; for companies, growth potential and operating performance - could threaten to dry up should those fewer swimmers opt for a change in direction. Then again, could these big moves make our fragmented market a little less so. A 2011 paper from the Insurance Brokers Association of Canada notes the space is populated by 316 p&c insurers.
Albert pointed out that, as it stands in Quebec, most brokers are selling products of no more than three insurers.
Can a broker truly say he or she has identified the best deal/package/protection available when choice is dictated by what so few players may feel comfortable offering?
Catherine Mainguy, president of the Regroupment des cabinets de courtage d'assurance du Québec, said last year the Intact-AXA merger means 50% of the provincial broker channel's business will be done with the company. If in a position of strength - or hoping to win the battle for scale in a bid to leverage efficiencies - an M&A may seem an attractive option.
PwC suggested in a client newsletter last May that mid-sized insurers seeking scale should consider merger opportunities. "Those companies caught in the middle - too large to be niche players, but too small to reap economies of scale - will have to rethink their strategies," noted Allan Buitendag, leader of PwC's national insurance consulting practice.
During a presentation in May, Intact president Louis Gagnon repeated his prediction that approximately 25% of the existing p&c insurance market share will change hands within the next five to 10 years. It is not Intact's "intention to control the market," Gagnon said. The acquisition of AXA means the company now has "a suite of products that is difficult to replicate," he pointed out. "And that was the objective."
It may be that acquiring (if a company is well-capitalized and well-managed) affords a faster and safer way to grow than doing so organically.
PwC reported that although it expected M&A deal volume in the Canadian insurance sector to strengthen in 2012, measures such as Solvency II, low yields, demutualization of Canadian p&c insurers and uncertainty around legislation and federal regulation in the United States will influence how things roll out.
Will all this make for a refreshing dip or is everyone going to get all wet?
Maybe it depends on what time will tell.