January 1, 1999 by Canadian Underwriter
Listed broker-network Vector Intermediaries Inc. has struck a deal with General Accident Group (GA) which could cure the network’s cash woes. The deal, which could inject up to $35 million into Vector’s coffers, includes a $20 million loan facility made available by the insurer. The deal also provides GA with a five-year option to acquire Vector common shares at a modest premium to their current record low price.
Exercising the purchase option for a total of 13.392 million shares would cost GA $15 million. The option allows GA to acquire 500,000 common shares at an exercise price of $1.00 per share, 7,142,857 common shares at an exercise price $1.40 per share, 3,000,000 at $1.50 per share, and 2,750,000 at an exercise price of $2.00 per share. At press-time, Vector’s shares were trading at the 98c level.
Vector president Gordon Campbell says the $20 million loan will allow the network to meet two goals. “Most of the first $10 million will be used to pay off existing debts that the Vector management inherited,” with the balance allocated to the “war-chest” for future acquisition opportunities.
Jim Hewitt, GA executive vice president, says GA is demonstrating its commitment to the broker network. “We’re trying to support the independent broker network which is being challenged to compete from an efficiency standpoint. Broker consolidation is one avenue to compete. There are also other avenues, such as brokers being directly connected through terminals to their insurers. General Accident is supporting a number of these avenues,” he says.
Hewitt notes that GA has a large percentage of Vector’s nearly $130 million in-force premium volume, and adds the closer relationship will give the insurer a higher percentage of their business while allowing them to grow.
Nevertheless, Campbell is adamant that the deal will not compromise the network’s independence, “GA is the largest single insurer in the amount of business that we write but they still represent less than half of our total business that goes forward.”
The Vector/GA alliance comes on the heels of other broker/insurer alliances of recent months. In fall 1998, ING Canada Inc. and Equisure Financial Network (EFN) unveiled their own strategic alliance, with ING taking a $99 million stake in EFN. The deal fueled speculation that EFN was soon to become the retail arm for ING’s array of financial service products.
Marketwatchers note that a new battle could be in the offing between large insurers setting to establish direct distribution operations or partnerships with the brokerage networks. Both Equisure and Vector say, however, that their independence as brokers serving the public has not been compromised by the financial relationships struck with the insurers. Likewise, GA and ING say their relations with independent brokers will not be affected by the partnerships.