There are two distinct paths for companies seeking high growth: organic growth or growth by acquisition. The former requires long-term strategy and continued investment. The latter enables quick entry into new markets, adoption of new processes and technologies, and efficient scaling of resources and talent. The best companies find a way to do both.
The insurance sector in recent years has seen a steady trend of mergers and acquisitions (M&A) as companies look for ways to grow in the face of continued pressure on margins. Data are becoming an increasingly important part of value propositions for insurers, with customers demanding more personalized products and services. At the same time, new trends in technology such as artificial intelligence (AI), big data and the Internet of Things (IoT) are revolutionizing the way insurance is delivered and consumed.
For market leaders like Definity Financial Corporation (“Definity”) (TSX: DFY), this trend has required agility and focus. The company has been approaching M&A from a strategic standpoint and focusing on acquisitions that complement the significant moves it has made to innovate in its core business.
“Definity’s story has very much been about playing the long game and building key capabilities to enhance competitiveness across our business,” says Innes Dey, the company’s senior vice-president of legal and strategy.
“For us, M&A plays a number of roles,” he continued. “Adding scale has always been important to support better underwriting and customer experience, and the pace of industry innovation underscores that importance. We also see opportunities to complement our capabilities and expand our offerings, particularly in the commercial insurance market. In terms of distribution, M&A and partnerships are ways for us to support our broker partners while protecting our competitiveness amidst ongoing consolidation in the broker channel.”
Recently, the company has been focusing on distribution. In October 2022, Definity acquired a majority stake in McDougall Insurance, one of the largest property and casualty insurance brokerages in Ontario. Definity had held an equity stake in the company since 2017. Since then, McDougall has completed 14 broker acquisitions and increased its annual premium base to $500-million. The 2022 purchase brought Definity’s ownership stake in the company to 75 per cent from 25 per cent.
“In the McDougall deal, we moved from knowing them solely as business partners to also establishing an ownership position a number of years ago, and that gave us extra comfort and confidence when the time came for this transaction. But our majority stake still leaves room for entrepreneurial participation by the management team, which is a key ingredient,” Dey says. “The value brokers provide to both their clients and the insurance carriers they represent can be tied to their entrepreneurial spirit and our approach to the McDougall transaction was to leave room for that spirit to thrive.”
Inorganic growth, while important, can only be successful if it is building on a strong organic growth strategy. Definity recently established a relationship with Google Cloud that will allow the two companies to collaborate and leverage Google’s advanced data, analytics, AI and machine learning technologies. This partnership is set to accelerate the development of innovative personalized insurance solutions within a highly secure cloud environment.
“Google is a global leader in data, analytics, AI, machine learning – all things we see as critical to where our industry is going,” Dey says. “This relationship is a tremendous opportunity to take an intentional approach to exploring these opportunities together.”
The Definity family of companies has similarly made significant investments to develop market-leading digital capabilities. In 2022, Definity completed a multi-year cloud transformation journey that saw the organization move to Guidewire Cloud, making it the first Canadian property and casualty (P&C) insurer to have its core insurance platform take advantage of Guidewire Cloud capabilities.
These growth gains come on the heels of Definity’s 2021 demutualization, in which the company converted from a mutual insurer to a publicly traded share company. With $1.6-billion in gross proceeds and $800-million in concurrent private placements, Definity’s IPO was the largest Canadian IPO of the year, and the second biggest in TSX history.
It’s been a big year for Definity. And Dey says each of its business moves, while separate in scope, served a broader objective: “These are all connected, long-term strategies.
“While we were moving through demutualization and getting ready for life as a public company, we were making significant investments in our core business at the same time,” Dey says. He points to the launch of Sonnet as a fully digital insurer into white space in the market and modernizing the company’s broker offering with its Vyne platform as examples that “build toward our view of where the industry is going.”
Definity’s approach is a well-rounded view of how applying capital funding to relationships and products can not only enhance competitiveness but also propel growth. This focus has served the company well: its recent market capitalization landed at $4.67-billion. Definity CEO Rowan Saunders also recently scored recognition from The Globe and Mail’s Report on Business Magazine, which awarded him Strategist of the Year, lauding “bold decisions” that have “materially changed and improved the strategic position of their business.”
Definity is well-positioned to capitalize on the long-term growth opportunities in the Canadian P&C market. The company’s disciplined underwriting approach, strong balance sheet and diversified business mix provide a strong foundation on which to build in the years to come.
“Last year was a critical turning point to unlocking our full potential,” Dey says. “Becoming a public company gives us additional flexibility, and we are now well positioned to compete on a level playing field with our strongest competitors.”
For other players in the space, Definity’s performance-oriented execution serves as a reminder that inorganic growth is only part of the path to success. Companies should carefully consider all options in order to determine the best and most efficient growth strategy. In a consolidating marketplace, having a sound organic growth strategy is necessary to act quickly and decisively to capture the advantages that come from inorganic growth.
Advertising feature produced by Globe Content Studio with Definity. The Globe’s editorial department was not involved.