Demutualization should trigger consolidation in Canadian P&C market: GMP Securities analyst

Demutualization should bring more consolidation into the Canadian property and casualty marketplace, according to a GMP Securities analysis issued by Stephen Boland.
“We anticipate that the larger, mutual insurers will continue to work with the Department of Finance to demutualize in order to compete more effectively with the large stock P&C companies,” Boland writes in his Oct. 5 analysis. “We believe that other mutual insurers could demutualize which in turn may lead to a period of consolidation, similar to what occurred in the life insurance industry over a decade ago.”
Boland’s analysis identifies some of the most likely “hunters” in the mergers and acquisitions game, including Intact Financial Corporation and Westaim, which owns 100% of JEVCO Insurance Company.
Boland’s analysis identifies possible target acquisitions for Intact, noting that Intact could afford to purchase any of the following: Factory Mutual, Liberty Mutual, ACE INA, CNA Canada, Guarantee of North America, GCAN, Gore Mutual or Pembridge Insurance.
Westaim could afford to purchase 29 different insurers, including Echelon General, XL Insurance, Portage La Prairie and Allianz, among others, Boland’s analysis notes.
Insurers with a strong possibility of being acquired, Boland’s analysis says, include RSA Canada, The Economical, Chartis Canada, Zurich Canada, LIU Canada and Old Republic. The purchase of these insurers, however, would require more capital than is currently available, he adds.
“Insurers that we believe have a strong possibility of being acquired are focused around the problematic financial health of the parent company,” Boland’s analysis states. “Five of the six insurers in this category have parent companies that have experienced operational issues or that may be exiting the Canadian marketplace.
“We believe AXA’s sale of AXA Canada is a recent example of a foreign firm raising capital by selling its Canadian operations.”