Who is funding many of these insurance mergers

The industry continues to consolidate and pension funds are one major source of capital for insurers, a Montreal-based merger and acquisition expert observes.

“One or two notable [carrier M&A] transactions per year has slowly transformed the Canadian landscape, including the recently-announced acquisition of RSA by Intact and Tryg,” said Georges Pigeon, Montreal-based partner for deal advisory at KPMG Canada, during KPMG Canada’s 29th annual insurance conference.

Pigeon was referring to the recently-announced agreement, valued at about $12 billion, by Intact Financial Corp. and Denmark-based Tryg A/S to acquire RSA plc. If the deal closes, Intact will take over London-based RSA’s operations in Canada, effectively raising Intact’s share of the Canadian P&C market to about 20%. Intact will also take over RSA’s operations in Britain, Ireland and the Middle East while Tryg will take over RSA’s operations in Sweden and Norway. Intact and Tryg will own 50% each of RSA’s Danish operations.

Separately, Intact announced Nov. 25 it has closed a $3.2-billion equity deal with the Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan Board to help fund the RSA-Tryg deal. Intact also announced a similar deal with a group of underwriters led by CIBC Capital Markets and Barclays Capital Canada Inc. to provide $1.25 billion in equity funding. Those underwriters, along with Caisse, CPP, and Ontario Teachers, will provide cash to help cover the $5 billion that Intact has to pay for its share of RSA while Intact will issue Intact stock to those investors.

“There is continued interest by financial sponsors and pension plans in the Canadian and global insurance sector,” Pigeon said Nov. 24 during KPMG’s annual insurance conference, held online this year.

For its part, the Ontario Municipal Employees Retirement System sees attractive returns in commercial specialty insurers, said Sharon Ludlow, then the head of insurance investments strategy at OMERS, in an interview with Canadian Underwriter in 2017. OMERS (which was not part of the KPMG panel) helped fund two acquisitions of foreign insurers by Toronto-based Fairfax Financial Holdings Ltd. One was the 2015 acquisition of Brit PLC and another was the 2017 acquisition of Switzerland-based Allied World.

At the 2020 KPMG Insurance conference, Pigeon gave several examples of recent deals in the insurance industry.

One example Pigeon cited of a private equity deal involved Toronto-based Onex Corp. and Bermuda insurer Convex Ltd. Onex announced Nov. 17 it is part of a consortium that has agreed to invest $1 billion into Convex. That deal is subject to regulatory approval. Convex’s co-founders include Stephen Catlin, who founded commercial insurer Catlin Group in 1984. Catlin Group was acquired in 2015 by XL Group PLC, which in turn was acquired by Paris-based AXA in 2018.

Another example of pension funds investing in insurance, as cited by Pigeon, is the 2019 announcement by New York-based Constellation Insurance Holdings, which raised $500 million from Caisse and Ontario Teachers.

Constellation plans to invest that $500 million into Canadian and American carriers that seek additional money in the form of equity investment, Constellation CEO Anurag Chandra told Canadian Underwriter in a separate interview in 2019. One reason carriers seek outside investment capital is to modernize their information and communications technology, Chandra said at the time.

The industry continues to see investment into insurtechs and fintechs, Pigeon said Nov. 24 at the KPMG Canada conference. The COVID-19 pandemic is an “accelerator” for insurtech investment, since carriers, brokers and vendors are all digitizing processes for people working from home, observed Pigeon.

“Insurers continue to see asset and wealth management as sectors driving their M&A activity. They are building a wider array of investment products with a focus on alternative classes.”

The main focus of Pigeon’s panel, Merger of equals: A Canadian insurance M&A story, was the recent combination of La Capitale and SSQ.

“The world is changing fast,” Jean-François Chalifoux, CEO of La Capitale/SSQ, said during the KPMG panel. “We both in our strategic plans came to the conclusion that size matters more and more going forward, as we needed to invest in technology and digitization.”

La Capitale and SSQ closed their merger July 1, 2020. They have now formed Canada’s largest mutual including life premiums. Wawanesa remains Canada’s largest P&C mutual.

Before the merger, Chalifoux was CEO of SSQ. Jean St-Gelais, formerly chairman and CEO of La Capitale, is chairman of the combined firm.

“Both CEOs, management teams and boards felt that we would become stronger together than if we continued to compete against each other,” Chalifoux said during the KPMG conference.

On Dec. 3, La Capitale/SSQ announced its new brand name, Beneva.

“This merger creates, nationally, the fourth largest player in group benefits and a growing player in individual life savings and P&C,” Pigeon said Nov. 24 during the KPMG conference.

Feature image via iStock.com/SB