Exactly one year ago, Charles Brindamour made a call that was bold and prescient: Consolidation in Canada’s sleepy – yet lucrative – property and casualty insurance sector was coming.
The P&C business, which covers automobile and home insurance, is notoriously fragmented, and Intact Financial Corp. Intact, the company Mr. Brindamour runs, is the largest Canadian player with a market share of just 17 per cent. The way the chief executive saw it, as he told participants in the company’s investor day, 10 per cent to 15 per cent of market share was likely to trade hands in the near future.
But it wasn’t yet clear how the status quo could change. Some big Canadian P&C players are subsidiaries of global giants, such as RSA and Aviva Aviva, and no one knew if the parent companies would even entertain hiving off these profitable arms.
A year later, one solution has emerged: Prospective buyers have to get imaginative. Intact has announced a deal to buy RSA Canada, which has a 5 per cent market share – but to do so, it also has to acquire the parent company’s British division, as well as co-own RSA’s Danish business.
The deal was formally announced Wednesday, and received the blessing of RSA’s board and the multinational’s largest shareholder, activist fund Cevian Capital.
“We’ve admired RSA for a long time,” Mr. Brindamour said Wednesday. “We’ve been thinking about finding a way to make this transaction possible for many years.”
Crucial to landing the deal was finding a dance partner. After much deliberation, Intact is teaming up with Denmark’s Tryg A/G to jointly acquire RSA for $12.3-billion, with the Canadian insurer paying $5.1-billion of the total.
RSA has been a tough business for any single buyer to take on because it has tentacles spread across Scandinavia, Canada, Britain and Ireland. Tryg, though, was willing to take most of the Scandinavian business – which delivers the bulk of RSA’s profits.
In a compromise, Tryg and Intact will co-own the Danish division, so that Tryg does not run up against competition and antitrust issues in its home market.
Mr. Brindamour has known Tryg CEO Morten Hubbe for many years, and early on, they had a professional friendship, sharing thoughts on their own markets and how they see the P&C business evolving.
“The conditions were not always right for this to work,” Mr. Brindamour said, referring to the RSA deal. “It’s been a long thought process and relationship over many years.”
As time passed, Intact and Tryg both got bigger, which made them better able to absorb such a large deal. And then the stars aligned.
“Earlier this spring, and [in] early summer, it became clear to us that the timing had become very good for us,” Mr. Brindamour said. “We both felt that RSA’s [businesses] in our respective jurisdictions were quite attractive and a very good fit for each other.”
Intact was also mindful of shifting winds. “Our industry is consolidating,” Mr. Brindamour said. As in many sectors, insurance companies are using artificial intelligence to mine their historical data in order to offer more profitable pricing and to make better risk assessments. The bigger a company is, the more intelligence it will have.
While many companies struggle to make their acquisitions work – for reasons such as cultural differences, overpaying or weak integration after the pomp of the public announcement – Intact stands out as one that ultimately derives value from its deals.
The company was spun out of Netherlands-based giant ING in 2009 and, over the past decade, Mr. Brindamour has pulled off several large acquisitions – notably the 2011 purchase of AXA’s Canadian division for $2.6-billion and the 2017 acquisition of U.S.-focused OneBeacon Insurance Group Ltd. for $2.3-billion.
Over that time, Mr. Brindamour noted, Intact has also outpaced its peers’ return on equity by seven percentage points. When you do that, he said, “you clearly bring something to the table when it comes to acquisitions.”
“We have a track record, we have an integration plan and we will move fast,” he told analysts on a conference call Wednesday. Even if there are hiccups, he believes Intact is paying such an affordable price – RSA’s shares had suffered of late – that there is some margin for error. “The economics are such that we could absorb a shock,” Mr. Brindamour said.
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