Definity grows commercial portfolio, eyes M&A

Focus on improving its commercial business has paid off, Definity Financial Corporation’s president and CEO Rowan Saunders told a Feb. 14 fireside chat with BMO Capital Markets equity analyst Tom MacKinnon.

“It’s really a very different-looking portfolio now than it was just a few years ago,” Saunders said. “That then has given us the ability to go forward with new capabilities and open up a much bigger marketplace.”

Areas of focus include business, mid-market and specialty.

“The middle-market segment is where we really are building deep relationships with brokers,” he said. The firm is eyeing verticals in construction and certain manufacturing segments, as well as specialty markets in agriculture and the sharing economy.

Saunders noted it’s still a work in progress.

“About 30% [of that portfolio] is going to be small business, about 40% is going to be in the verticals of mid-market and another 30% in specialty,” he said. “We’re not there yet, particularly on the specialty lines, which we know run more attractively than the general commercial marketplace.”

BMO’s MacKinnon noted the insurer has been vocal about plans to grow through acquisition.

“It’s not really a surprise that Definity is looking to build its market share,” Saunders said. “And when you think about our ability to get to the Top 5 and you do the math, it’s clear we will need more than just organic growth to get there.”

Which is why principals are spending time with investment bankers that are familiar with the firm’s capacity and capabilities.

“With these record low interest rates…most asset classes are somewhat elevated and we’re not ignorant of that fact,” Saunders said. He added Definity is applying disciplined search criteria and only looking at businesses that can advance its strategy.

“We’re looking at businesses and ultimately valuations where we think that we can get the return that we want,” he said. “We are looking to grow the top line.”

A few years ago, when the company was still a mutual, it had less access to capital, which made it “very difficult to do anything meaningful.”

Saunders said recent work to improve the business, including adding executive talent and people with integration experience, has led to a better platform for inorganic growth.

“Our credibility as a buyer has dramatically changed over the last little while. We have the capabilities [to] make the business better,” he said, “and we have access to capital that we never had before.”

 

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