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When Saunders came on board in 2016, Definity was a sleepy insurer in desperate need of an upgrade. Last year, he pulled off the second-biggest initial public offering in Canadian history—and the stock just keeps going up

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Paul Bolasco/The Globe and Mail

Rowan Saunders reached the apex of his career standing on the confetti-littered floor of the Toronto Stock Exchange. It was Nov. 23, 2021, and he was about to ring the bell on the second-largest public stock offering in Canadian history—the end of a gruelling six-year process to convert his company, Definity Financial Corp., from a customer-owned property-and-casualty insurer into a publicly traded one.

The Definity CEO, flanked by company chair John Bowey and a group of cheering colleagues, all clad in black surgical masks, watched the flashing blue clock count down the final seconds to the opening bell. At 9:30 a.m., the ticker DFY began trading at $22 a share. By day’s end, the stock had jumped by 24%, raising $2.3 billion and clobbering the next-largest offering of the year, Telus International, by $1 billion.

DFY stands for Definity, of course—but it could just as easily stand for defy. From the moment the 150-year-old company announced it was looking to go public back in 2010—six years before Saunders set foot inside its Waterloo, Ont., headquarters—it faced setback after setback, from new federal regulations that threatened to scuttle the deal, to executive overhauls, to a group of unhappy policyholders. Then there was the fact that no Canadian P&C insurer had ever demutualized, meaning there was no existing legal framework to follow.

Yet, under Saunders’s leadership, revenue has grown to $3.1 billion, up from $2.4 billion in 2018, and the share price has continued to climb. As of early November, it was trading at nearly $40, up 37% in 2022, even as the S&P/TSX Composite Index has dropped by more than 8%. And Definity’s total return, including dividends, is more than twice that of other financial stocks on the index.

Bowey gives much of the credit to Saunders. When Economical Mutual Insurance Co., as Definity was then known, approached him in 2016, Saunders was the CEO of RSA Canada, a subsidiary of global insurer RSA Insurance Group (formerly Royal and Sun Alliance), and had been for 13 years. Economical was half the size of RSA, and its future was murky. “We had some bold ambitions on how to move forward,” says Bowey, “but none of it was guaranteed or cast in stone.”

So he was impressed when Saunders agreed to jump ship from his sinecure and take a chance on Economical, which had to seriously boost its game if it wanted to make the demutualization a reality. “We needed to perform much differently than we ever had before, and that was going to take the right leader,” says Bowey. “We certainly needed someone with experience in our industry, but we also needed someone who was up for a once-in-a-lifetime challenge.”

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Saunders’s resumé is stacked with insurance bona fides. At RSA, he wasn’t just head of the Canadian division; he also sat on the company’s global executive committee. He was chair of the Insurance Bureau of Canada and remains a member of the board of directors. Indeed, when he asked his dad, Brian—who spent 38 years as an insurance broker—whether he should take the Economical job, Brian told his son it was the job he’d spent the past 30 years preparing for.

If you take Saunders’s childhood into account, it was far longer than that. As a kid in Durban, on the east coast of South Africa, you’d often find young Rowan sitting behind his dad’s desk at property and auto insurer Sedgewick Group, and he spent summers as a teenager working there, too. In 1984, the family (including Rowan’s younger brother, Andrew, now The Globe and Mail’s chief revenue officer) left South Africa for Canada. After graduating from York University with a degree in arts and history, Saunders planned to follow in his father’s footsteps and become a broker. But Brian suggested he get some experience at a large insurance company first.

Saunders landed at RSA Canada and moved up the chain, as well as across the country, before becoming CEO at age 39. “I was shocked, to be honest,” he says. “But it made me dive into the deep end and figure things out quick.”

When Economical came knocking, Saunders was ready for a new challenge. The company began insuring farmers’ barns in 1871 in Berlin, Ont. (now Kitchener). Over the next century and a half, it expanded to include several brands, among them Family Insurance, Missisquoi and Petline. But while Economical was well-respected, it was widely seen as somewhat sleepy.

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Saunders had a plan: Improve profitability, enter new lines of business and start investing millions in new technology to bring the company into the 21st century. “We were going to have to make substantial changes, so I asked the board if they were up for a really big cultural change, as well as a big modernization,” says Saunders. “And the board was incredibly progressive and super willing to do that.”

Job one was to figure out which areas were no longer profitable. “This first phase was a really important piece of the strategy and probably one of the more difficult to go through,” says Saunders. “We had to make a lot of tough decisions as we reshaped and repriced the portfolio.”

He hired McKinsey & Co. to do a deep dive. Their findings supported Saunders’s feeling that the company was overweight in personal auto policies, which accounted for more than 50% of its book. Plus, it had a smaller amount of commercial business insurance—a highly profitable line—on the balance sheet than its peers. Lastly, the company was heavily concentrated in Ontario. If Economical wanted to go public, the portfolio would have to be more geographically diverse. Saunders began to push the pace of growth outside Ontario, particularly in B.C. and Quebec.

He put together a team to expand its commercial insurance business, by moving toward mid-size organizations in construction and manufacturing, and boosting specialty lines, the contracts for which typically involve complex coverage over $100 million (the kind required by larger office towers and manufacturing plants). “We needed an offering that was a one-stop shop for brokers,” says Saunders. “And that is exactly what we did by adding these capabilities.”

It also meant exiting lines that were chronically unprofitable, including long-haul trucking and dairy farms. “You have to play where you have a chance of winning,” he says. “You can’t be all things to all people.” Today, personal auto accounts for only 43% of the $3.4-billion portfolio, and commercial lines make up about 30%.

Simultaneously, he had to modernize the way Economical did business. Not long before Saunders came on board, it launched Sonnet, a direct-to-consumer business that sold auto insurance. It was a huge shift, and some insurance brokers saw it as direct competition. “Rowan’s extreme knowledge of the insurance industry helped sharpen the focus on how a direct-to-consumer channel should operate,” says Bowey, “and let the brokers know we did not abandon them.”

In 2018, Saunders expanded Sonnet to include home, landlord and tenant insurance, and began to invest in its technology. What set Sonnet apart was its reliance on data analytics—particularly in improving underwriting capabilities (the process of deciding if the risk of insuring someone is worth the cost). For example, clients no longer have to complete lengthy questionnaires, which could exceed 30 detailed questions. Shoppers no longer have to fret over the exact distance they live from a fire station or whether the house has veneer siding or brick. Instead, the underlying technology scrapes public records like tax and housing reports, meaning applications can be processed quicker and with more competitive rates.

Within three years, the online business was selling about $200 million in premiums each year. Today, it has surpassed $300 million, and it’s up 22% in 2022 alone. Saunders also leveraged Sonnet’s tech to create an online tool called Vyne to help its network of brokers provide more accurate quotes and faster approvals.

While overhauling the balance sheet was a major priority, Saunders also had to juggle the responsibilities around demutualization. Canada’s P&C industry has been consolidating over the past decade, as foreign-owned players have sold their operations to the larger domestic companies. Economical had to raise capital from equity investors to keep up.

But since 2010, tension had been brewing among policyholders over how Economical’s capital should be divided. When the IPO process began, there were no federal regulations around P&C demutualization. In 2014, the federal finance department ruled all policyholders who contributed to building an insurer’s capital base should receive a share of the company’s surplus money. The result was a smaller group of 878 mutual policyholders—essentially co-owners of the company—who once thought they were entitled to every nickel of its $1.9 billion in value would now have to share the IPO pot with roughly 630,000 non-mutual policyholders—basically, anyone who had purchased an Economical insurance contract.

The two groups set up committees to review proposals on how to divvy up the benefits of the demutualization. Then came negotiations, along with three separate votes. If the groups couldn’t come to an agreement on the allocation of funds, all Saunders’s hard work would grind to a halt. “It was extremely high-stakes,” he says. “If any one of those votes failed, demutualization would be dead, and we would have to start all over again.”

Bowey says Saunders was a reassuring voice in tense meetings with policyholders. In the end, they voted in favour of the IPO plan. Looking back, Saunders says he was never worried it would end in failure. “The bigger worry was, could we transform our business and enter life as a public company with a decent performance and a good track record?”

To get there, Saunders needed the right team—one that understood the ins and outs of running a publicly traded company. In the past five years, there’s been more than 75% turnover among the executive leadership team. At the next level down—which includes Definity’s top 100 executives—more than half are newcomers.

It was a painful period during which he had to let go a large number of employees. “I didn’t have the necessary time required to groom and coach an existing team,” says Saunders. “We were on the clock, so I needed to act quickly and hand-pick a team that had a strong track record and reputation.”

Chief people officer Brigid Pelino is one of the newcomers. With previous experience running HR at High Liner, WestJet and Tim Hortons, it was Saunders’s energy that drew her in. “Rowan was so confident in the Definity story and the team he was building that people just wanted to be part of it,” she says. “He also really takes the time to engage not just with his next-level team, but with the board and the employees, to gather necessary information that helps him guide the ship.”

Saunders knows a thing or two about putting together a strong team—he was captain of the rugby team at York. (He no longer plays, but he still passionately cheers for his home team, the South African Springboks.) “Just like competitive sports, taking on a new challenge is about putting people in the right spot,” he says. “I have built great teams in the past, and I was confident I could do it again.”

His leadership team combines talent from public companies including Rogers Communications, TD Bank, Canadian Tire and RSA, which was recently purchased by the country’s largest P&C insurer, Intact Financial. “We have such diverse players around the room with different experiences to bring together,” says Pelino, noting the company also added 1,000 employees between 2018 and 2020. “I’ve seen it done in other organizations where it can really hurt the culture. Here, Rowan has been able to make our culture stronger.”

Institutional investors seem to agree. On the day of the IPO, an additional $759 million in shares were bought through a private placement—Healthcare of Ontario Pension Plan took two-thirds, and reinsurer Swiss Re Investments took the rest. “Those investors gave a lot of credibility for future investors to come on board,” says Saunders.

His efforts have paid off. Since 2018, Definity—the name was unveiled in August 2021, when the IPO was filed—has seen a marked improvement in its combined ratio, a measure of profitability used by insurers to gauge how well they’re performing in daily operations. It calculates the amount an insurer pays out in claims compared to what it collects in premiums; the lower the score, the better. In 2018, the combined ratio was 111.8%. By 2020, it had dropped to 94.6%. At the end of last year, it was down to 93.1%. Bank of Montreal managing director Tom MacKinnon says this puts Definity in line with—if not better than—the industry. “It’s a testament to Rowan’s ability to attract and motivate a new team,” he says.

Definity has also seen a vast improvement in gross written premiums—the amount it receives from policyholders and a key part of total revenue. In 2018, they were sitting around $2.5 billion. By the end of 2021, they had increased to $3.3 billion.

Now, Saunders has set his sights on becoming one of the top five P&C insurers in Canada, up from No. 7 today. “Many of us who run businesses have ambitions but don’t always have the resources to fulfill those ambitions,” the CEO says. “But we have $1 billion-plus in excess capital to deploy—and going public has made us a much more credible buyer and a stronger participant in M&A.”

He’s already taken one step down that road: In October, Definity paid $217 million to boost its equity ownership in McDougall Insurance from 25% to 75%. Along with Definity’s other broker investments, the Ontario-based distributor is expected to generate in excess of $40 million a year (versus $8 million at the end of 2021).

“The bigger brokers are getting bigger with consolidation—just as the insurers are consolidating,” Saunders says. “And we are positioning ourselves to have a foot in every angle of the industry.”

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