Canadian Underwriter
Feature

Intact’s Big Market Splash


July 1, 2011   by David Gambrill, Editor


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Canada’s desirable commercial mid-market figured prominently in a blockbuster deal in which Canada’s Number 1 property and casualty insurer, Intact Financial Corporation, acquired Canada’s Number 6 property and casualty insurer, AXA Canada, for $2.6 billion in cash.

As a result of the deal, Intact will expand its market share in Canada up to 16.5%, by increasing its direct written premiums from $4.5 billion to more than $6.5 billion.

Intact has made no secret of its interest in growth through acquisition, and it was all ears when Paris-based AXA Group stepped forward with an offer about three months ago to sell its Canadian operations. Of particular interest to Intact was AXA Canada’s suite of products related to the commercial lines mid-market.

“AXA has a different product suite than us, mainly in commercial lines,” Intact Insurance President Louis Gagnon told Canadian Underwriter in an interview about two weeks after the announcement of the deal. “They have a very, very strong base of commercial lines market product and a relationship with brokers. Also, it was in our plan to expand our commercial lines appetite. We wanted to do it with the right expertise, and that’s what AXA brings.”

In particular, AXA has an underwriting appetite in the middle commercial market, including oil and gas, errors and omissions and directors and officers insurance and surety. The commercial mid-market is a segment that Intact has targeted for expansion.

In addition to diversifying its suite of products, Intact will also be strengthening its geographical diversity, including a new presence in the Newfoundland market. “It makes us a strong player in Quebec, in Ontario, in Alberta and in B.C., where we are already a pretty strong player,” Gagnon said. “Also we are entering Newfoundland. We’re well positioned now in New Brunswick. So when you look at that, it creates a lot of good diversification by region, by product. Now we have close to $2 billion in commercial lines.”

AXA also brought to Intact the groundwork for a solid financial performance. AXA’s three largest subsidiaries, AXA Assurances inc., AXA Insurance (Canada) and AXA Pacific Insurance Company, had combined ratios in 2010 of 93.1%, 95.2% and 92.2%, respectively. These three subsidiaries combined for a profit of more than $300 million in 2010, according to MSA Research/Baron data.

“We were looking at AXA and they have great financial results,” Gagnon said. “They had great success. They were outperforming the industry. So their risk selection process, their underwriting, their way of looking at segmentation are all elements that have a lot of interest for us. Combined with us, I think there will be a great marriage between both organizations with those strengths.”

The “I dos” now declared, the wedding guests in Canada’s marketplace are now waiting for the paperwork to be filled out. As of the interview date in mid-June, the deal is expected to be consummated in between 60 to 120 days. Within six months, by agreement between the two companies, Intact will cease using the AXA Canada brand name actively. And 12-18 months after the formal closing of the deal, the company expects to be using one common IT platform.

The real question, of course, is how the two companies and their broker forces will blend their resources in the new marital home. “This is one of the biggest challenges when you do an acquisition, to put two different ways of doing business (together) – two different cultures, two different ways of managing processes,” Gagnon said. “We’ve started our integration process. I think when you do this, you have to find the similarities and the differences. We are at that stage right now. But the objective of the integration is pretty clear: In 12-18 months, we’re going to use one IT platform, we want to share offices and locations between the two organizations, we want to pay the employees on the same basis for both organizations. And importantly, we want to share our values.”

Brokers and others in the industry have many questions about how the market will look with this new behemoth on the block. Gagnon fielded such questions when he appeared in June at the Insurance Brokers Association of Ontario (IBAO)’s 7th annual Young Broker Council conference in Niagara Falls. One broker queried about his brokerage’s status, noting that his brokerage was an AXA brokerage, but did not have Intact as one of its markets. “You’re an Intact broker now,” Gagnon responded simply. He went on to promise brokers at the conference that integration with AXA would not change Intact’s relationships with brokers in any way.

“One thing is for sure, we are not going to cut anything that is related to writing an insurance policy or settling a claim,” he said, in answer to a question of whether the acquisition would involve cost-cutting decisions. “Underwriters are going to stay. Claim adjusters are going to stay….
“There is going to be no cut in [broker] commissions… There is going to be no change in how AXA is looking at portfolios and how we [at Intact] would look at a portfolio. We will try to use the best of the two. So there is going to be no change in how we deal with the broker.”

Gagnon noted further that Intact would be doing 80% to 90% of its business through the broker channel after the deal, representing $5 billion in volume.

Gagnon says he recognizes brokers’ anxiety about losing a major market like AXA as a result of the consolidation. “I acknowledge the fact that it’s one less market for brokers,” he said. “There’s no doubt about that. But [the acquisition] creates for brokers a very, very strong player. Our objective is to build a world-class, Canadian-owned organization. I think it’s very important for brokers that we are in Canada and that the decision process is in Canada. While we will be a large organization, we have regional offices all across the country.”

Intact’s strength and stability following the deal should be helpful to the broker channel in meeting the challenge of competing with new market entrants, Gagnon pointed out. A new market entrant from the United States has long been rumoured, but no intelligence suggests it is imminent. Still, companies these days have to be prepared for anything, Gagnon said.

“We need a very strong broker company to support the broker financially, to support the broker in their growth, but also to make sure the broker channel is ready to face existing competition and new competition that may come into play from direct writers or from other sources,” he said. “I think that because of our diversification, because of our large suite of products, it’s going to make us more stable. We will be there in good and bad times. And I think it’s key for brokers to count on a very stable organization.”


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