Intact completes acquisition of U.S. specialty insurer OneBeacon, announces executive appointment

Intact Financial Corporation (IFC) announced on Thursday that it has completed its $2.3 billion (US$1.7 billion) acquisition of U.S. specialty insurer OneBeacon Insurance Group, Ltd.

The acquisition makes IFC “a leading provider of specialty insurance in North America with over $2 billion in combined annual premiums focusing on small to midsize businesses,” the company said in a press release. “The completion of this transaction represents a defining milestone in our history and our journey to build a world-class P&C insurer by combining Intact’s leading commercial lines track record and deep data, claims and digital expertise with OneBeacon’s high caliber team and specialty lines capabilities,” said Charles Brindamour, chief executive officer of IFC.

The combined specialty organization will be led by Mike Miller, former CEO of OneBeacon. Miller will join IFC’s executive team as president, U.S. and Specialty Solutions and report to Brindamour.

IFC and OneBeacon have been working together for the past several months to review each organization’s activities, processes and systems, IFC reported in the release. In the fourth quarter, Intact will start offering OneBeacon’s tailored specialty products and services in Canada, beginning with technology and entertainment risks.

New capabilities will provide coverages for all lines of business for technology risks, including third-party cyber and professional liability for manufacturers of electronics, software and IT service providers and the telecommunications industry. For the entertainment industry, comprehensive commercial insurance solutions for motion picture, television and documentary film makers will be offered, as well as for businesses associated with the motion picture and television industry, IFC reported.

IFC has also established a cross-border facility to better serve its Canadian-based customers with U.S. exposure, and its U.S.-based OneBeacon customers with Canadian exposure. “This seamless cross-border experience and broader geographic footprint will strengthen our ability to compete with other large international insurers,” Brindamour suggested.

The release said that the objective is to grow the new specialty lines businesses in the U.S. and operate at a combined ratio in the low 90s within 24 to 36 months.

The acquisition is expected to be accretive to net operating income per share within 24 months, IFC reported. The financing has been structured to maintain balance sheet strength with debt to capital and minimum capital test (MCT) ratios of approximately 25% and 200%, respectively, at closing. The debt-to-capital ratio is targeted to be below 20% within 24 months. Additionally, a reinsurance arrangement has been entered into to provide significant downside protection against adverse reserve developments, IFC said. “IFC’s balance sheet remains strong and well protected, allowing flexibility to pursue growth opportunities as they arise.”

Related: Intact’s acquisition of OneBeacon Insurance Group expected to close this week

Since the announcement of the acquisition in May, IFC has “secured long-term financing at attractive rates,” the release pointed out. The $2.3 billion acquisition has been financed with the net proceeds from the issuance of $754 million of subscription receipts, $300 million of preferred shares and $425 million of medium term notes. The balance was funded from IFC’s excess capital and approximately $200 million drawn down under the terms of the company’s credit facility.

As a result of the closing of the acquisition, the 8,210,000 subscription receipts issued by IFC in May 2017 will be automatically exchanged in accordance with their terms on a one-for-one basis for common shares of IFC effective Thursday. Trading in the subscription receipts will be halted effective immediately and the subscription receipts will be delisted as at the close of business today. The subscription receipt conversion will increase the number of outstanding common shares to 139.2 million, resulting in the average outstanding number of common shares being 131.2 million for the third quarter 2017 and 131.1 million for the first nine months of 2017.

With the completion of the transaction, OneBeacon’s common shares have also ceased trading and are being delisted from the New York Stock Exchange.

“We are delighted to welcome the OneBeacon leadership and employees to the Intact family,” Brindamour said in the release. “We believe this new structure will help us accelerate the sharing of our specialty lines expertise and best practices across North America, and support Mike and his teams in achieving our specialty lines objectives.”

Miller added that “all of us at OneBeacon are excited to be part of the Intact team and together, build upon our combined capabilities to deliver a compelling specialty lines experience for agents and brokers throughout North America. OneBeacon’s proven specialty lines track record, combined with Intact’s analytics and service expertise well position us for profitable growth and near-term delivery of new products and opportunities across Canada and the U.S.”

IFC is the largest provider of property and casualty (P&C) insurance in Canada with close to $10 billion in total annual premiums. The company has over 13,000 full- and part-time employees who serve more than five million personal, business, public sector and institutional clients through offices in Canada and the U.S. In Canada, Intact distributes insurance under the Intact Insurance brand through a network of brokers, including its wholly-owned subsidiary BrokerLink, and directly to consumers through belairdirect. In the U.S., OneBeacon Insurance Group, a wholly-owned subsidiary, provides specialty insurance products through independent agencies, brokers, wholesalers and managing general agencies.