May 20, 2010 by Canadian Underwriter
Three P&C chief financial officers – representing Intact Financial Corporation, Northbridge Financial Corporation and RSA Canada Group – see Canada’s Top 10 property and casualty insurance companies controlling about 8% more of the market sometime over the next five years.
Speaking as panelists at the Canadian Insurance Financial Forum (CIFF) held in Toronto on May19, the CFOs were asked to pin a specific number to how much more they thought the market would be consolidated over the next five years.
The panel moderator, Graham Segger, a retired partner of Deloitte and Touche, asked the question. He noted Canada’s Top 10 P&C insurance companies controlled 57.6% of direct premium volume as of the end of 2009.
Nick Creatura, CFO of RSA Canada Group, said he “wouldn’t be surprised” to see that number climb up to 65% by 2014, observing further that it would only take about one or two major deals to reach that mark.
Craig Pinnock, CFO of Northbridge, and Mark Tullis, CFO of Intact Financial Corporation, each provided numbers in the range of 62-66%.
“I don’t really see a pattern or a trend, but I do believe [M&A] deals are likely to happen over the next few years,” Creatura said. “The market remains fragmented, investment yields are likely to remain low for some time, returns are inadequate for many companies and there’s excess capacity.
“There’s an increasing divergence in financial results among top tier and bottom tier performers. There are a number of players who are well-positioned as potential acquirers.”
And so growth from an M &A deal would certainly be attractive, since companies are having a tough time achieving growth internally.
In the broker space, there is much more M&A activity, Creatura said.
“Demographics is driving much of that [M&A] activity, as senior principals of brokerages look to retire,” he said. “I think they will naturally look to a sale transaction.”
Pinnock noted the strategic timing might not be right for many brokers to sell. He said a five-to-10-year window would be more likely, since the multiples the brokers were asking for now might be too high to interest prospective insurance company buyers.
Pinnock added that financial corporation acquirers were less likely than insurers to “kick the tires” and bore into the underlying insurance drivers for a deal.