Co-operators General Insurance Company is the latest insurer to take an ownership position in a broker network, trading its equity holdings in Ontario-based Barton Insurance Brokers to the Hub Group in exchange for an approximate 10% stake of the latter’s ordinary shares.
Incorporated in November 1998, The Hub Group has merged fourteen brokerages across Canada into a single network accounting for roughly $400 million in premium volume. Hub plans to go ahead this month with an initial public offering (IPO) with a listing on the TSE (symbol: HBG). The stock-swap agreement with Co-operators is based in value on the IPO listing price.
In addition, financial holding company Fairfax Financial purchased roughly 60% of HUB’s shares for $45 million in cash at the beginning of this year. Following the Hub IPO, Fairfax expects to maintain a 45% stake in the company, injecting an approximate additional $45 million into the brokerage network by exercising its stock purchase rights.
Hub Group president Rick Gulliver expects the IPO and Fairfax transaction will generate about $150 million in total which will be used to acquire additional brokerages. “We have a three year strategy to hit $150 million in commissions and $1 billion in premiums. We want to go after the best operators and we’re going to provide them with the capital to grow,” he says.
Co-operators join a growing list of underwriters to have taken equity positions in national broker networks. ING Canada recently injected $99 million into Equisure Financial Network while General Accident Group (GA) acquired a stake in Vector Intermediaries. Equisure and ING unveiled plans of a joint-venture, a specialty home and auto insurance company, which will be run by ING with the broker network serving as its dedicated distribution channel.
Ed Sawicki, Co-operators vice president of planning and acquisition, says insurers are maintaining close ties with the brokerage networks to ensure their continued access to the distribution chain. “The broker networks are reducing the number of insurers that they write for and with the major networks controlling nearly 40% of industry premiums, you are proverbially screwed if you are not among them.”
Similar to the GA/Vector deal, Co-operators insist the transaction is not an exclusive distribution partnership, and that they are openly exploring other investment opportunities. “Right now, aside from Hub, we’ve only invested in smaller individual brokers. Discussions are on-going with other industry prospects, but the terms have to be right in these types of transactions,” says Sawicki.