When Paris-based AXA Group chose to sell its Canadian operations a few weeks ago, it cited the relative lack of growth prospects in the Canadian market. It's a problem that Charles Brindamour, the man who decided to buy those operations for $2.6-billion, knows well.
Mr. Brindamour, chief executive officer of Canada's largest property and casualty insurer, Intact Financial Corp. has been quietly cooking up plans for expansion outside the country. He has already decided that Intact should probably start by selling automobile insurance in one or two other countries.
But he doesn't intend to put the plans into action, at least not in a big way, for a few years.
That's because he believes that, in the meantime, Intact - which was formerly ING Canada and was spun off by its Dutch parent company and listed on the Toronto Stock Exchange two years ago - can keep growing by buying more competitors.
Intact's deal for AXA Canada comes at the front end of a wave of consolidation that is expected to transform Canada's property and casualty insurance market, where more than 200 players are currently fighting to provide home, auto and business insurance. Just last week, Fairfax Financial decided to consolidate three of its wholly owned companies - Markel, Lombard and Commonwealth - into one brand, Northbridge Financial Corp., precisely because of this expected trend. In the next few years, experts say, the industry's big fish will be eating the small.
"When you combine the changes in capital requirements globally, the fact that the industry is underperforming, and that it is hugely fragmented, in my view this is the perfect recipe for more consolidation," Mr. Brindamour said in an interview. "And our deal clearly was a first step in that direction."
Within hours of the announcement of the AXA deal, Moody's Investors Service said it would lower Intact's credit rating by one notch if the takeover went through as designed because the deal would reduce Intact's financial flexibility.
But Mr. Brindamour said he isn't concerned, and he believes Moody's might change its mind after Intact demonstrates that its financial picture will remain sound. He points out that the insurer was able to raise $961.2-million in an equity offering earlier this month when it had been banking on $800-million, meaning it won't have to take on as much debt as expected.
"I don't think the downgrade is inevitable," Mr. Brindamour said. Even if it happens, it won't stop him from doing more shopping.
AXA Canada has 2,300 employees and is the sixth-largest home, auto and business insurer in the country, with a market share of 5.2 per cent. Once the deal goes through, Intact's market share will rise to about 16.5 per cent. Mr. Brindamour wants more.
The ways he sees it, Intact, which has 7,500 employees and a network of more than 1,800 insurance brokerages, still has a number of avenues for growth in the coming years - including takeovers and further developing all of the different channels it uses to reach customers, including the Web and brokers.
"You've got right there the elements of 60 months' worth of healthy growth," he said.
After that? Look beyond Canada.
"One of the things that we're looking at is to make sure that within 60 months we have a good pipeline of growth beyond what we're doing in Canada," he said. "We're trying to find one or two markets abroad where we can really leverage what we're exceptional at."
AXA Group abandoned Canada as part of a strategy in which it will concentrate its growth efforts in emerging markets.
"For us, I think that the opportunities would be in unsophisticated markets where we can bring sophistication to the table and have an impact," Mr. Brindamour said. "There is clearly a bias towards emerging markets, but not necessarily only emerging markets."
Meanwhile the CEO said he hopes Intact will gain new appreciation at home. "This is the second time in two years that we've brought a meaningful amount of foreign ownership back in Canadian hands," he said, referring to the initial public listing in 2009 and the AXA Canada acquisition. "In the kind of environment where we see a trend the other way, I think it's refreshing."