October 9, 2018
Commercial lines may be moving more toward a direct model, a property and casualty insurance industry analyst suggested recently.
“It’s interesting to see commercial lines moving toward the direct model, which we haven’t really seen,” said Philip Heywood, a partner of financial services deals with PwC Canada. “It’s more personal lines that have gone direct – commercial is still broker-focused. Zensurance has disrupted that.”
Heywood was referring to Travelers’ acquisition last month of a majority interest in Zensurance, a Canadian online manager of commercial insurance products. He offered his comments Tuesday about M&A trends he is seeing in the property and casualty space in Canada.
Another trend is in M&A, where buyers tend to be valuing targets based more on profitability than sheer volume – something Heywood said he is has seen especially over the past 12 months. “It’s more around, ‘How do we improve the profitability of the book of business that we have?’ and ‘How can we augment that [profitability] with products that we don’t already have, by buying specialty insurers?’”
One example is Intact Financial Corporation’s acquisition of OneBeacon Insurance Group. “Those funds weren’t deployed into just buying more volume,” Heywood said. “It was a strategic transaction to something a bit different.”
Intact completed its acquisition of OneBeacon in September 2017. OneBeacon’s products target commercial surety, entertainment, environmental, excess property, financial institutions, financial services, group accident and health, healthcare, management liability, ocean and inland marine, public entities, technology and tuition refund.
Heywood said there is a bit of a shift in buyer interest away from “volume growth for the sake of volume growth. What that translates into is a bit of a shift away from the standard broker transactions in terms of levels of interest and more towards manufacturers of products – I think MGAs or carriers, particularly specialty lines of each products.”
Another area where there will likely be an increase in the volume of transactions happening over the longer term is in the consolidation or partnering among smaller regional mutuals.
“These may not be blockbuster headline deals, but we are going to see a volume uptick as they look to jointly invest in technology, protect their distribution and brands, drive economies of scale and continue to stay relevant,” Heywood predicted. “They may not be traditional M&A transactions and outright mergers; they may be more partnering and joint venture type activities. I think we will see an uptick in the mutuals doing something different, particularly the smaller regional mutuals.”
This story was originally published by Canadian Insurance Top Broker.