January 15, 2014 by Canadian Underwriter
Desjardins Group has entered into a definitive agreement to acquire State Farm Canada’s property and casualty and life insurance business, as well as its mutual fund, loan and living benefits companies.
The transaction is expected to close in January 2015, subject to regulatory approval, according to a statement from Desjardins. Following the closing, Desjardins said it will operate the State Farm Canada businesses under the State Farm brand for an agreed license period.
The deal would make Desjardins the second largest P&C insurance provider in Canada, with annual gross written premiums of approximately $3.9 billion, up from approximately $2 billion.
It would also become the fourth largest life and health insurer in Canada.
As part of the agreement, State Farm will make a $450 million investment in non-voting preferred shares into Desjardins Group’s post-closing P&C insurance business, which will include the newly acquired State Farm Canada P&C operations, according to the announcement.
Crédit Mutuel, a major European cooperative financial group and long-term partner of Desjardins Group, will also invest $200 million as part of the deal.
Desjardins Group will also allocate capital of approximately $700 million to its P&C business, and its life and health insurance subsidiary, Desjardins Financial Security, and certain other Desjardins units will allocate capital of $250 million for the life insurance, mutual fund, loan and living benefits components of the agreement, according to its statement.
Once the deal has closed, State Farm’s 1,700 Canadian employees and roughly 500 agents will continue to serve about 1.2 million customers in Ontario, Alberta and New Brunswick. Desjardins added that its expects the deal to lead to job creation in the coming years, including in Quebec.
Desjardins will continue to operate its other insurance brands separately across the country, it said.
“This acquisition will allow Desjardins to develop a broader, multi-channel distribution network across the country, while continuing to meet the needs of State Farm’s Canadian client base,” Monique F. Leroux, chair of the board, president and CEO of Desjardins Group commented in a statement in the deal.
“At the same time, it will enhance our position in Canada by expanding our customer reach and achieving economies of scale.
“The agreement between State Farm and Desjardins, combined with the support of our long-term French partner, Crédit Mutuel, brings together three financial cooperative and mutual organizations to create an insurance leader in Canada. It also provides a foundation for exploring additional opportunities for even greater collaboration in Canada in the future,” she added.
In a statement. Edward B. Rust Jr., State Farm’s chairman and CEO, said the deal will create a “leading platform with new opportunities for growth and success for our employees, agents and customers.”
“State Farm’s financial investment in the newly combined P&C business and license to use the State Farm brand reflect our confidence in the strength of the combined business going forward.”