One of Canada's oldest insurance companies is being sold for $1.125-billion to a major U.S. insurer, in a deal that will see the business fall into foreign hands for the first time since it was founded by Sir John A. Macdonald in 1887.
Dominion of Canada General Insurance Co. is to be acquired by The Travelers Companies Inc.
The New York company wants to expand geographically and add new insurance products, and it offered a price high enough to catch the attention of Dominion's current owners, E-L Financial Corp. Ltd. – the investment holding company controlled by the Jackman family.
"Travelers wanted to expand in Canada and they were offering good value ... it's consistent with the way E-L manages its investments," said Richard Carty, vice-president and general counsel of E-L Financial. E-L is run by Duncan Jackman, son of the company's founder, former lieutenant-governor of Ontario, Hal Jackman. Companies associated with Hal Jackman and his family own about two-thirds of E-L's stock, according to the company's regulatory filings.
While E-L's executives often get calls about their business holdings, which also include Empire Life Insurance Co., the firm hadn't previously planned to part ways with Dominion, which it has owned since 1969 when the company was incorporated.
Dominion made up $3.4-billion of E-L Financial's $16.7-billion in assets, according to the company's 2012 annual report.
E-L Financial isn't a widely traded stock, but its price has soared nearly 50 per cent so far this year and 9.5 per cent over the course of Monday trading, indicating investors approve of the decision to part ways with Dominion.
It closed at $647.99 per share.
The company has stated that there will be no impact or change of strategy for its Empire Life business because of the sale.
The property and casualty insurance industry has been under pressure from low interest rates, which reduce investment income. U.S. insurers have experienced added stresses, such as higher losses from natural disasters and an uneven economic recovery.
Travelers has been looking to expand outside of its home base in the U.S. to diversify its business in areas where it sees the potential to grow in the long term. That includes emerging markets and Canada.
"The combination will substantially enhance Travelers' product breadth in Canada by coupling The Dominion's commercial and personal portfolios with Travelers Canada's surety, management liability and commercial middle market products," said George Petropoulos, chief executive officer of Travelers Canada, in a statement.
Dominion's Canadian operations will remain headquartered in Toronto. Mr. Petropoulos will team up with Dominion's CEO Brigid Murphy to lead the organization, assuming the role of executive vice-president of bond and financial products.
Dominion reported a $17.4-million drop in its net operating income in the first quarter of the year, which the company attributed to higher claims expense for automobile and weather-related personal property losses. These were partly offset by lower claims expenses for commercial property, according to company filings.
E-L Financial hasn't yet decided what it will do with the cash left on its books after the sale closes in the last quarter of the year, pending regulatory approvals and other conditions.
Travelers said it will fund a debt through a combination of of debt and preferred stock as well as other company resources, but the deal isn't expected to change its share repurchase plans for this year or next.
(JacquelineNelson is a Globe and Mail Financial Services Reporter.)
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