Canadian Underwriter

Why the impact of an Intact-RSA combo would vary by province

November 6, 2020   by Greg Meckbach

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Things could get interesting for brokers in Atlantic Canada if Intact takes over RSA’s Canadian operations, a Saskatchewan broker told Canadian Underwriter Friday.

That being said, he felt if the proposed deal announced Thursday goes through, it would still leave plenty of choice among insurers in the Canadian property and casualty market.

David Pettigrew, CEO of Regina-based Harvard Western, was responding to the announcement Thursday that Intact Financial Corp. and Denmark-based Tryg A/S intend to make an offer to acquire London-based RSA plc for the Canadian equivalent of about $12 billion. A number of hurdles would need to be met, including approval by RSA’s board.

“It would pick Intact’s market share up, but on balance I think there are still lots of other players in the market,” said Pettigrew, chair of the Insurance Brokers Association of Saskatchewan, in an interview Friday.

If the deal goes through, Intact would essentially take over RSA’s operations in Canada, as well as some of RSA’s operations outside of Canada, including in Britain. It would cost about £7.2 billion, with Intact paying £3.0 billion and Tryg paying £4.2 billion. The British pound closed Thursday at Cdn$1.71.

“The board of RSA has indicated to the consortium that it would be minded to recommend the proposal, subject to satisfactory resolution of the other terms of the proposal, including a period of due diligence which is currently underway by the consortium,” Intact said Thursday in a release.

Kent Rowe, president of the Insurance Brokers Association of Canada, emphasized that Thursday’s release is only a proposal.

“It certainly does not appear to be inevitable. I would not want to put the cart before the horse,” said Rowe, who by day works in St. John’s, Nfld. as vice president of commercial lines for Wedgewood Insurance.

Rowe did suggest there is a possible upside and downside.

“For a Canadian company to become a global player is exciting,” Rowe said Friday in an interview. “We are always concerned when choice in the marketplace is potentially limited as a result of an acquisition. That would be our concern particularly in hard market conditions.”

Among Canadian P&C brokers, news of the proposed deal has generated a discussion about market concentration. Intact led the Canadian P&C market in 2019 with 15.27% market share overall (and $8.76 billion in net premiums written), according to the 2020 Canadian Underwriter Statistical Guide. RSA placed seventh overall with 4.35% market share.

Pettigrew believes there will still be plenty of choice in the Canadian P&C market, while noting the impact of the merger could have a different regional impact across the country.
“In Newfoundland, this could be really interesting,” he said about the proposed Intact-RSA-Tryg deal. “That could be an area of the country where it might have some impact.”
RSA placed third in Nova Scotia and second in Newfoundland and Labrador in the overall P&C market in 2019. Intact had top place in both Nova Scotia and Newfoundland and Labrador in the overall P&C market.
In Atlantic Canada, Intact and RSA ranked third and fourth, respectively, in the boiler and machinery line of business, with nearly 10% market share each. Intact and RSA had $56 million and $55 million respectively in direct written premiums in boiler and machinery in 2019.

In Pettigrew’s home province of Saskatchewan, RSA and Intact ranked 10th and 13th, respectively, in the overall P&C market in 2019. Canadian Underwriter reports the top four insurers in Saskatchewan are the Auto Fund, Saskatchewan Government Insurance, Wawanesa and The Co-operators.

Canada-wide, there are still plenty of P&C insurers to choose from, including mutuals, Pettigrew notes.

“If you are a mutual, you can’t just be acquired in a normal commercial transaction, so I think that choice will certainly continue to not be a problem in the longer term,” said Pettigrew. “Certainly, consolidation is rampant at the broker level. I think it will continue to some degree, with the companies.”

The general topic of mergers and acquisitions was raised Nov. 4 during a conference call in which Intact executives discussed its Q3 financial results with investment banking analysts.

“Our thesis at Intact is here in Canada, 15 to 20 points of (Canadian P&C insurer) market share will change hands in the coming years,” Intact CEO Charles Brindamour said during the call, two days before the joint proposal with Tryg to acquire RSA was made public.

Factors driving consolidation include the economic disruption from the COVID-19 pandemic and the industry-wide return on equity of below 10%, Brindamour said at the time.

“We think this is a good market in the coming months and coming years for consolidation,” said Brindamour.

In Thursday’s press release disclosing the RSA proposal, Intact said if the deal goes through, Intact “would retain RSA’s Canada and UK & International operations and obligations.” But it also goes on to say Tryg would retain RSA’s Sweden and Norway operations, with Intact and Tryg co-owning RSA’s Denmark operations.

Canadian Underwriter asked RSA Friday whether this means Intact would retain RSA’s operations in every country with the exception of Sweden and Norway, with Intact then co-owning RSA’s Denmark operations. At press time, Canadian Underwriter had not heard back.

Intact is going through an international expansion. This past September, Intact bought International Bond & Marine Brokerage Ltd. of Hoboken, N.J.

Intact reported Monday it had net earned premiums of $2.9 billion in the three months ending Sept. 30. Of that, Cdn$540 million came from commercial insurance in the United States.

In 2017, Intact bought OneBeacon Insurance Group Ltd., based near Minneapolis, for about US$2.3 billion.  OneBeacon writes a variety of commercial lines including liability, marine, surety and entertainment, among others.

In its 2020 Q3 management discussion and analysis, Intact reported Nov. 3 its North American specialty operations are now under a single brand, called Intact Insurance Specialty Solutions.

ING Insurance Company of Canada was renamed Intact in 2009 when ING Groep sold its interest in its Canadian subsidiary. In 2016, Intact acquired all of the outstanding shares of InnovAssur assurances, originally formed through an alliance between AXA and National Bank of Canada. InnovAssur writes property & casualty insurance through National Bank General Insurance.

Intact had acquired AXA’s Canadian operations in 2011.

In 2012, Intact bought Jevco Insurance from Westaim, which had acquired Jevco in 2010 from Kingsway Financial.

Other major Canadian carrier deals in recent years include:

  • Intact completed in December 2019 its acquisition of The Guarantee Company of North America and managing general agent Frank Cowan Company, both of which Intact bought from Cambridge, Ont.-based Princeton Holdings for about $1 billion.
  • This year’s merger of La Capitale Insurance and Financial Services and SSQ Insurance. The companies have yet to announce the name of the combined Quebec City-based mutual insurer;
  • CAA Club Group’s acquisition of Echelon Insurance from Echelon Financial Holdings completed in 2019;
  • Desjardins Group’s acquisition of State Farm’s Canadian operations in 2015;
  • The Travelers Companies Inc.’s 2013 acquisition of The Dominion of Canada General Insurance;
  • The 2015 merger of North Waterloo Farmers Mutual Insurance Company (NWFM) and Oxford Mutual Insurance Company, which created Heartland Farm Mutual Inc.;
  • Aviva Canada’s 2016 acquisition of RBC General Insurance Company;
  • Echelon Financial’s acquisition in 2014 of 75% of Insurance Corporation of Prince Edward Island from Saskatchewan Government Insurance; and
  • RSA Canada’s acquisition of L’Union Canadienne in 2012.

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