November 9, 2018 by Greg Meckbach
CAA Club Group has agreed to buy non-standard auto insurer Echelon Insurance for $175 million, the companies said Friday.
The deal will allow CAA Insurance to reach new markets and customers, CAA Club Group president Jay Woo wrote in an email to Canadian Underwriter. If the deal closes, CAA Club Group will be able to expand into non-standard auto, property and commercial insurance.
The CAA Club Group of Companies includes CAA Insurance Company as well as two clubs – CAA South Central Ontario and CAA Manitoba – affiliated with the Canadian Automobile Association.
CAA Club Group would buy Echelon Insurance from its parent firm, Echelon Financial Holdings Inc. In addition to Echelon Insurance, Echelon Financial also owns 75% of Insurance Corporation of Prince Edward Island, which Echelon bought in 2014 from Saskatchewan Government Insurance. ICPEI is not part of the deal CAA announced Friday.
Echelon Financial “expects to work collaboratively to assist ICPEI in setting up stand-alone operations in order to ensure business continuity including supporting its broker partners” after selling Echelon Insurance, Echelon Financial said.
The deal still requires approval from two-thirds of shareholders of Echelon Financial, which is traded on the Toronto Stock Exchange.
Certain shareholders who together own more than half of Echelon have agreed with CAA to vote their shares in favour of the deal, the companies said Friday.
The deal gives Echelon “the ability to consider and support a superior proposal” to buy Echelon Insurance, though Echelon Financial would have to pay CAA Club Group $6 million if Echelon Financial were to sell to a different buyer.
“We look forward to inviting Echelon’s insurance brokers into one of Canada’s most trusted brands and supporting them with industry-leading IT systems, innovation and infrastructure,” Woo stated to Canadian Underwriter in an e-mail. “CAA will continue to give brokers the transparency and fairness they have come to expect from us and need to grow their business.”
In addition to non-standard auto, Echelon Insurance also writes insurance for motorcycles, antique and classic vehicles and recreational vehicles, commercial property, long-haul trucking, surety, liability and extended warranty.
Echelon and CAA Insurance were ranked 15th and 19th respectively, by market share in auto insurance in Canada, according to Canadian Underwriter’s 2018 Stats. Those rankings were based on net premiums written in 2017.
Echelon Financial is led by Serge Lavoie, who was appointed CEO in 2016. Lavoie was CEO of Jevco Insurance Company before Intact bought Jevco.
Until 2005, 50% of Echelon Financial was owned by The Co-operators Group Ltd. and its affiliates.
As of May 8, 2018, The Co-operators owned 17% of Echelon shares, according to a securities filing. Nearly one third (29.98%) of shares were owned by EdgePoint Investment Group Inc., another 14.97% by Foyston, Gordon and Payne Inc. and another 10% by Cambridge Global Asset Management Group.
The Echelon Financial shareholders who agreed to support the acquisition include EdgePoint Investment Group, Cymbria Corporation, Foyston, Gordon and Payne, Franklin Templeton Investments Corp., and Echelon’s directors and senior officers, Echelon said Friday.
About a year ago, Echelon completed the sale, valued at about $22 million, of its European operations, which wrote non-standard auto through Qudos Insurance A/S of Denmark.
Echelon used to write non-standard auto in Florida through American Colonial Insurance Company, which it acquired in 2010 and sold in 2013.
Echelon reported a combined ratio of 96.5% during the second quarter of 2018, up three points from 93.5% in Q2 2017.
Echelon is scheduled to release its Q3 financial results next week.
CAA Club Group was formed in 2016 by the merger of CAA South Central Ontario and CAA Manitoba.