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Canadian p&c insurers should prepare for next wave of corporate M&A: Ernst & Young


April 11, 2016   by Canadian Underwriter


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Canadian property and casualty insurers should “expand risk advisory capabilities” and prepare for the “next wave” of corporate mergers and acquisitions, Ernst & Young LLP suggested in a report released Monday.

In its 2016 EY Canadian property and casualty insurance outlook, EY identified seven “external forces” that will shape the Canadian P&C industry this year, as well as eight priorities on a recommended “road map” for “leading” insurers.

One of those priorities is to prepare for the next wave of M&A activity.

“Consolidation in the Canadian P&C market will continue in 2016 and beyond,” EY said in the report. “In each of the past six years, the market has experienced at least one major transaction, and the trend continues in 2016.”

Insurance carriers that “refrain from the M&A frenzy will require a strategy to compete more effectively against larger, batter-capitalized companies,” EY added. “Recruiting human capital will become paramount, as will accessing distribution that provides high-retention, profitable business.”

One priority for leading insurers this year is to “develop and attract the right talent to drive change,” EY stated, adding part of that is expanding risk advisory capabilities.

“Traditional product approaches directed at individual risks are falling out of favour as customer seek more holistic solutions,” EY stated. “In 2016, insurance teams will need to develop expertise in wealth and risk advisory, such as bundling insurance of homes, cars, boats and jewelry, and the liability associated with them as part of a value-add wealth management service.”

In the report, EY identified seven “external forces” that will “shape” the P&C sector this year. They are: technology (including telematics); the competitive landscape; customer expectations; economic and financial conditions (including the drop in the Canadian dollar and in oil prices); regulation; cyber risks; and catastrophes.

“Aviva Canada’s acquisition of RBC General Insurance earlier this year shows that leading Canadian insurers will not relent in their quest for growth and an improved competitive position,” EY said in the report.

The Royal Bank of Canada announced Jan. 21 the sale of its general insurance business to Aviva Canada Inc. RBC writes a variety of insurance lines, including home, auto, health, travel, wealth, group and reinsurance.

That deal is valued at $582 million and subject to regulatory approval and other closing conditions.  Aviva said if completed, the acquisition will give Aviva “certain home and auto insurance manufacturing capabilities including claims, underwriting and product development.” A 15-year partnership with Aviva “will allow us to maintain our deep client relationships, while offering a full suite of property and casualty insurance products,” Neil Skelding, President and CEO of RBC Insurance, stated in a release in January.

About 575 RBC employees will become Aviva employees.

In its Canadian property and casualty insurance outlook, EY noted the expectations will change for both consumer and corporate customers of insurance.

“Commercial customers will continue to require more sophisticated insurance solutions in 2016,” EY stated. “This includes coverage and product enhancement for: cybersecurity; the sharing economy; new technologies like drones and telematics; sensor-based technologies; errors and omissions; simplified insurance and integrated digital attributes for small and medium-sized commercial insurance.”