Aviva Canada to acquire “capital light” MGA

Aviva Canada is acquiring Optiom O2 Holdings Inc., a managing general agent (MGA) that specializes in vehicle replacement insurance in Canada.

The $170-million Cdn deal is subject to regulatory approval and is expected to close in the first quarter of 2024. Aviva Canada says the deal will expand its capital light businesses, which make up over half of its portfolio.

“The acquisition strengthens our offering and distribution capabilities in a highly attractive [non-standard risk] segment of the Canadian insurance market,” Aviva Canada CEO Tracy Garrad said of the deal. “We know Optiom well through our existing relationship and are excited about what we can do together to better serve our brokers and customers.”

Aviva Canada is an existing underwriting capacity provider to Optiom, which provides total loss coverage for new, used and leased vehicles. Optiom’s website notes 40% of all drivers in Canada are left owing on a vehicle that has been written off.

“Optiom takes care of what your primary insurance coverage leaves behind,” the company’s website states. “Some of the enhanced benefits provided are total loss deductible reimbursement, partial loss OEM benefit, vehicle value appreciation benefit, partial loss deductible reimbursement, key FOB reimbursement, extended rental vehicle reimbursement, diminished vehicle value benefit, and more.”

Related: Aviva Canada CEO’s take on the commercial lines market

As a group, Aviva writes several different lines of non-life and life insurance, each of which has different levels of regulatory capital requirements. Broadly speaking, Aviva says its capital-light business generally includes both non-life and life business.

A capital light company has a low capital-to-sales ratio and/or a low capital-to-operating cash flow ratio.

For example, capital investments may include fixed assets such as property, plants, or equipment. And so, if a company invests $1 in fixed assets and generates sales of $10 — or if a company spends $1 on fixed assets for every $20 it generates during normal business operations — the company would be considered a “capital light” company.

Advantages of capital light companies cited by the blog Medium include:

• lower capital requirements for higher returns
• higher profit margins
• flexibility and entrepreneurship
• focus on innovation

Aviva Canada bought Optiom from Novacap Financial Services, a specialist in mid-market buyouts since 1981.

“Since Novacap’s investment in September 2020, Optiom has become Canada’s largest provider of vehicle replacement insurance,” Novacap commented. “Despite headwinds in dealership inventory during our investment, our partnership helped Optiom launch new products, establish a premium finance facility, and integrate key ERP [enterprise resource planning] business tools, which resulted in significant growth.

“In 2023, Optiom expanded its dealership network, became an exclusive provider for major clients, added two carrier partners to the company’s underwriting syndicate, and streamlined operations by bringing marketing in-house and implementing a new claims tool.”

Feature image courtesy of iStock.com/BernardaSv