The rationale for Intact expanding its commercial appetite

Mid-sized commercial clients are going to get bigger, so executives with Canada’s largest property and casualty insurer want to continue their expansion in specialty lines.

“We are really scaling up our specialty lines capability here in North America,” Intact Financial Corp. CEO Charles Brindamour said during a recent virtual fireside chat with Jaeme Gloyn,  equity research analyst for diversified financials at National Bank of Canada.

Gloyn asked Brindamour to discuss the feedback Intact has received from clients and brokers about Intact’s agreement with Tryg A/S to acquire London-based RSA.

“The brokers are saying, ‘Look, we are hoping that Intact will keep the expertise and the appetite of RSA in commercial lines’ and I think we have shown over the last few years, with our expansion in our specialty lines business, that we are capable of expanding our appetite,” Brindamour said March 24 during National Bank Financial Markets’ 19th annual financial services conference.

The RSA deal, announced in November, 2020, has yet to close. If approved, Intact would form a consortium with Danish insurer Tryg A/S to acquire RSA. Intact is expected to acquire RSA’s operations in Canada, Britain, Ireland and the Middle East while Tryg would acquire RSA’s operations in Norway and Sweden. In Denmark, RSA’s operation would be co-owned by Intact and Tryg.

The deal is expected to cost Intact and Tryg Cdn$5.2 billion and Cdn$7.3 billion, respectively. The proposed acquisition recently overcame some key hurdles, including approval from RSA shareholders and approval from Canada’s federal competition bureau.

Brindamour said Mar. 24 that he does not anticipate any “roadblocks” to closing the RSA deal during the middle of 2021 Q2, meaning some time this May.

Intact has gained specialty lines capability over the past few years. In 2017, Intact acquired Minnesota-based OneBeacon Insurance Group Ltd. (now known as Intact Insurance Group USA LLC) for US$1.7 billion. Until 2017, OneBeacon was a separate publicly-traded firm, with the majority of shares held by White Mountains. OneBeacon’s specialty offerings include technology, marine, public entities, and entertainment.

Intact acquired the Canadian operations of AXA in 2011 and Jevco the following year.

In 2019, Intact bought The Guarantee Company of North America, which is known in part for its surety business.

“We are gaining international capabilities and I think if you want to be in the specialty lines with a long run of growth, you need international capabilities. This is what we are gaining with the RSA acquisition,” Brindamour said Mar. 24 during the fireside chat with National Bank.

Another topic of discussion was the long-term impact of COVID-19, declared a global pandemic by the World Health Organization in March 2020. Brindamour suggested that as a result of the pandemic, some small firms will go out of business while others will get acquired. This, Brindamour intimated, will ultimately lead to a decrease in the total number of Canadian small to mid-sized businesses and an increase in the size of some individual firms.

“We think there will be a lot of pain in the [small- to mid-enterprise] space. It means in practice that the middle is likely to shrink. In the middle there will be consolidation, where mid-sized businesses will get bigger. We need to create differentiation there.”

Feature image via iStock.com/Kritchanut