Canadian Underwriter

What Canadian MGAs think about the proposed Intact-RSA merger

November 18, 2020   by David Gambrill

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On the day Intact made its joint offer with Denmark-based insurance giant Tryg A/S to acquire RSA plc for Cdn$12.3 billion official, a Canadian association of managing general agencies (MGAs) expressed concern about the deal’s potential impact on market choice during a hard market in commercial lines.

If approved, the proposed mega-merger would see Intact, Canada’s largest P&C carrier (with a market share of just over 15% in 2019), acquire RSA Canada, Canada’s seven-largest P&C insurer (approximately a 4% market share in 2019).

“Should this acquisition go through, MGAs will see one less option for markets available to them to write business,” CAMGA managing director Steve Masnyk commented in a media statement about the proposed deal. “One less choice in the marketplace is never a good thing, especially when it comes to hard-to-place risks and niche-type coverages.”

RSA Canada offers insurance products and solutions for small to mid-sized enterprises (SMEs), mid-market enterprises, and Global Specialty Lines. Its book of commercial specialty business includes property, energy, equipment breakdown, professional E&O, commercial fleet auto, claims service, and risk control services, among others.

In formally announcing the acquisition offer Wednesday, Intact said the deal would bolster its offerings in many key commercial specialty lines segments.

“The combined specialty lines business [after the proposed merger] is projected to grow by approximately 30% and represent over $4 billion in annual premiums,” Intact announced in a release, which also confirmed that the boards of Intact, RSA and Tryg have all unanimously recommended the deal. “The business will benefit from an expanded product offering with strong global franchises in lines such as marine, specialty property, and E&O/D&O. The specialty lines platform will also benefit from a broader distribution footprint, providing existing specialty franchises with access to new regions.”

Reflecting a broader discussion within the industry about market concentration in Canada arising from the proposed merger, CAMGA says Intact’s acquisition of RSA Canada would effectively consolidate the Canadian commercial insurance market in a significant way, leaving MGAs with one less major market to provide capacity. This comes at a time when underwriting capacity in several lines of commercial insurance is becoming scarce.

“With insurers quietly exiting certain lines of business, MGAs fill that demand and capacity is certainly a concern,” commented CAMGA chairman Larry Shumka. “That being said, we see this development as an opportunity for other markets to step in to fill this void.”

MGAs act somewhat like “brokerages for the brokers,” helping retail brokers find coverage for clients in hard-to-place commercial lines. They not only help retail brokerages place coverage for clients, but they are also authorized to underwrite coverage in specific instances. To do that, they need capacity, as Masnyk notes.

“These types of [specialized] risks, especially in the commercial arena, are by their very nature — in addition to being affected by the current hard market — difficult to place. However, MGAs are hopeful that other insurers will see this development as an opportunity to re-examine their capacity appetites and consider more business underwriting through the MGA distribution network.”

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3 Comments » for What Canadian MGAs think about the proposed Intact-RSA merger
  1. Simon Fenn says:

    It reminds me of when Aviva became Aviva taking 4 insurers into one overnight. Each of the merged entities had ability in construction, my area of specialty. So the available construction market reduced by three.
    This may be great for shareholders but the jury is out if this is good for the buying public, especially at this crucial time in our marketplace.

  2. Reduced competition in any marketplace is hardest on consumers, simply from the perspective of reduced availability of competing products and providers. Pricing will increase as a result. Innovation will stall as the need to be better in a competitive sense will lessen.
    In the context of the present hard market in Canada this will obviously exacerbate issues related to a current shortfall of property risk capacity.
    The good news is that a vacuum always attracts new competitors, or at least encourages existing competitors to broaden existing appetites and perspective.
    But that takes time. Which in the short term is a problem.
    The Canadian insurance industry is dealing with unprecedented increases in CAT loss exposures, increased loss frequency and severity, not to mention changes in societal settlement expectations; these are being met by carriers which are universally determined to correct rates and increase consumer retentions; as well as to take a more mature approach to deployment of capacity and to increase spread of risk.
    So in the short term – perhaps – this merger creates more problems for consumers than it creates any benefit to a specific shareholder value. But in the long term these transactions are a part of normal industry processes and competition. The only constant in our world, after all, is change. And survival of the fittest is still a thing in any business.
    So the industry will adapt as always. In time.
    Now, if I can just figure out what to do with RSA subscription participation in 2021 when Intact and everyone else are already on risk………………..

  3. Eric+Lapenis says:

    Neither RSA nor Intact have done much business through MGA’s over the year so this purchase probably won’t have a significant impact on the MGA market.
    Intact is a very smart company, being really the only major domestic insurer with its own MGA division. I’d like to see more insurers embrace the specialty space as I’d rather have more of our good business with contracted insurers than MGA’s.
    For us this will probably result in more business going to other insurers and be a net loss for our Intact RSA book.
    RSA always came across to me as a poorly run company, especially for small to mid size accounts. Worst declaration pages on the business and I’ll be glad to see those go.

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