Exactly one year ago, Charles Brindamour made a bold and prescient appeal: Consolidation in the sleepy – but lucrative – property and casualty insurance industry was coming.
The property and casualty business, which covers auto and home insurance, is notoriously fragmented and Intact Financial Corp. Intact, the company headed by Mr. Brindamour, is the largest Canadian player with a market share of just 17%. As the CEO saw it, as he told attendees at the company’s investor day, 10 to 15 percent of the market share was likely to swap hands in the near future. .
But it was not yet clear how the status quo could change. Some of the big Canadian P&C players are subsidiaries of global giants, such as RSA and Aviva Aviva, and no one knew whether the parent companies would even want to get rid of these profitable weapons.
A year later, a solution has emerged: potential buyers need to be imaginative. Intact has announced a deal to acquire RSA Canada, which has a 5% market share, but in order to do so it must also acquire the UK division of the parent company, as well as co-owner of RSA’s Danish operations.
The deal was officially announced on Wednesday and received a blessing from RSA’s board of directors and the multinational’s largest shareholder, activist fund Cevian Capital.
“We have admired RSA for a long time”, Mr. Brindamour said Wednesday. “We have been thinking for many years to find a way to make this transaction possible.”
Finding a dance partner was crucial to closing the deal. After much deliberation, Intact teamed up with Danish 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 difficult endeavor for any single buyer to undertake, as its tentacles have spread across Scandinavia, Canada, Britain and Ireland. Tryg, however, was willing to take most of the Scandinavian business – which provides the bulk of RSA’s profits.
In a compromise, Tryg and Intact will co-own the Danish division, so that Tryg does not face competition and antitrust issues in its home market.
Mr. Brindamour has known Morten Hubbe, CEO of Tryg for many years, and from the start they had a professional friendship, sharing their thoughts on their own markets and their vision for P&C. evolving business.
“The conditions weren’t always right for this to work,” Brindamour said, referring to the deal with RSA. “It has been a long process of thinking and relating for many years.”
Over time, both Intact and Tryg got bigger, making them more adept at absorbing such a large amount. And then the stars aligned.
“Earlier this spring, and [in] at the start of the summer, it became clear to us that the timing had become very good for us, ”said Brindamour. “We both felt that RSA [businesses] in our respective jurisdictions were quite attractive and very well suited to each other.
Intact was also attentive to the changing winds. “Our industry is consolidating,” said Mr. Brindamour. As in many industries, insurance companies are using artificial intelligence to extract their historical data in order to offer more profitable pricing and better assess risk. The larger a company, the smarter it will have.
While many companies struggle to make their acquisitions work – for reasons such as cultural differences, overpayment, or poor integration after the public announcement pump – Intact stands out as a company that ultimately drives value. of its transactions.
The company was separated from Dutch giant ING in 2009 and, over the past decade, Mr. Brindamour has made several significant acquisitions – including the 2011 purchase of the Canadian division of AXA for $ 2.6 billion and the acquisition in 2017 of the American division OneBeacon Insurance Group Ltd. for $ 2.3 billion.
During that time, Brindamour noted, Intact also outperformed its peers return on equity by seven percentage points. When you do that, he said, “you clearly make something in terms of acquisitions.”
“We have a track record, we have an integration plan and we will act quickly,” he told analysts on a conference call Wednesday. Even if there is the hiccup, he believes Intact is paying such an affordable price – RSA shares had suffered in recent times – that there is a certain margin of error. “The economic conditions are such that we could absorb a shock,” Mr. Brindamour said.
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