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A sign of RSA insurance company is pictured outside its office in London December 13, 2013. RSA's chief executive Simon Lee has quit after the insurer warned on profits for the third time in six weeks, prompting the chairman to initiate a review that could lead to the sale of part of the business.

TOBY MELVILLE/REUTERS

Two of the largest players in Canada's highly fragmented property and casualty life insurance market could merge, according to one analyst.

London-based insurance firm RSA Insurance Group PLC may be looking to sell its Canadian division for more than $2-billion, according to Paul Holden, analyst at CIBC World Markets. And Canada's largest P&C insurer Intact Financial Corp. could be a buyer.

Parent company RSA is going through a tough time and has recently issued mutiple profit warnings. A spokeswoman told the Guardian that the insurer is looking at "disposals or cost cutting" to help shore up reserves in its struggling Irish division. The company's CEO Simon Lee recently stepped down, and the company's stock has fallen 30 per cent since the beginning of November.

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Such a "disposal" could see RSA sell businesses – in Canada, or internationally. "The probability that a part of, or the whole of, RSA is sold in the next three to six months appears high," Mr. Holden wrote in a note to clients Monday. "We think RSA Canada would be of great interest to Intact Financial."

Intact is looking to increase its market share above 25 per cent, from about 17 per cent now. Buying RSA would get Intact close to its goal, and the business lines are complementary, Mr. Holden said. RSA has a smaller personal automotive insurance business, but a solid book of business in commercial property, where Intact wants to build.

Mr. Holden thinks Intact may be less enthused with RSA's business in British Columbia, where the risk of earthquakes makes writing insurance a little trickier. These quakes have been presented as a risk that could "take down" Canadian insurers by Don Fogeron, chief executive officer of the Insurance Bureau of Canada (IBC).

Few Canadian players would have the scale to take on a company of RSA's size, but Intact could face competition from U.S. insurer The Travelers Companies Inc., Mr. Holden said. Travelers bought Dominion of Canada General Insurance Co. for $1.1-billion in June as part of an effort to expand into new markets.

But RSA Group hasn't made any decisions yet. A spokesperson for RSA Canada said he could not comment on rumour or speculation. Intact did not immediately respond to a request for comment.

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