The Shoe Drops Again
June 2013 Editorial
In the last few years, it has become an annual tradition in the Canadian P&C world that late spring will bring more big company mergers. In May of 2011, Intact rocked the industry with the purchase of the Canadian operations of AXA for $2.6 billion, cementing Intact’s position as the country’s top insurer. The following May, Intact struck again, scooping up JEVCO for $530 million. The next month, RSA—quiet since its purchase of GCAN—got back in on the action by buying L’Union Canadienne, allowing it to move back into Quebec.
Thus far, the trend had been one of Top-10 players acquiring smaller companies to fulfill strategic objectives such as broadening portfolios by line of business or by region. So it was a bit of a surprise this spring when Travelers flipped the script by announcing that it will be purchasing The Dominion for $1.1 billion.
Travelers is one of the largest insurers in the US but has been confined to the status of niche commercial player in Canada until now. This deal is more interesting than other recent ones because it will actually shift the landscape of the top players somewhat. According to data gathered for the 2013 Canadian Insurance Top Broker Annual Statistical Issue, the combined net premiums written by the two companies will vault Travelers from the 29th largest insurer in Canada into the top 10, and increase its market share from less than 1% to almost 3.5%. Most interestingly, Travelers is acquiring a substantial book of Ontario auto business at a time when the Ontario government has just passed a budget bill that pledges to squeeze auto insurers with a 15% rate cut without a clear plan how to achieve it.
Travelers will also inevitably have to deal with nationalist sentiment about a US company buying a 125-year-old Canadian brand founded by no less a figure than Sir John A. Macdonald. But the same scenario has not stopped Canadians from shopping at The Bay or buying Molson products.
All that said, for brokers, this deal is a shrug of the shoulders. Given the lack of overlap in the two companies’ portfolios, the argument that brokers are losing a market is a weak one. Indeed, it will be interesting to see what the new company brings to the table as it attempts to shore up its new position.
Copyright 2013 Rogers Publishing Ltd. This article first appeared in the June 2013 edition of Canadian Insurance Top Broker magazine