Definity’s preferred M&A targets

Definity provided a bit more detail about how M&A could help it become a Top 5 Canadian insurer, saying it’s interested in seeking to acquire either a large, commercial-focused carrier, or a scaled personal lines insurer.

“We want to be a leader in Canada, we know there’s strong organic growth, but when we think about what could strategically move us in that direction, and also help our mix of business, we have a preference for commercial insurance,” Definity Financial president and CEO Rowan Saunders said at the Scotiabank Financials Summit Thursday.

“So I think a company that’s either got a substantial commercial portfolio or is a commercial-only insurer fits wonderfully for us. It helps build the portfolio we’ve got. It helps add talent, and that’s the other really important thing that comes with a commercial acquisition.”

Definity was born from the demutualization of Economical Insurance in November 2021. The company is on record as saying its reason to demutualize and become a publicly traded company was to raise the kind of capital required for Definity to become one of Canada’s Top 5 companies.

MSA Research data published in Canadian Underwriter‘s 2024 Stats Guide shows Definity as the sixth-largest insurer in Canada in 2023, with $3.8 billion in total insurance revenue, representing a 4.28% market share in Canada’s property and casualty insurance sector.

The Co-operators was in fifth spot in 2023, with $4.7 billion in total insurance revenue and a 5.27% market share.

Saunders suggested organic growth would likely make up for much of the $900-million difference between the fifth and sixth spots. But M&A is definitely a key part of the company’s growth strategy.

In other news: McFarlan Rowlands, Excalibur join forces in merger

Saunders was asked what type of carrier acquisition target Definity would prefer. After his remarks about seeking a commercial insurer, he then listed another possible M&A dance partner.

He prefaced his remarks by observing that Economical Insurance (now Definity) implemented a digital platform, Vyne, in 2018 to streamline its broker office workflows — including policy administration and billing. This was to help the company grow its brokers’ personal lines business, and Saunders said the company had $1 billion of business to “drop onto Vyne.”

Partly for this reason, Definity thinks a personal lines carrier acquisition would also be a good fit for Definity.

“As I’ve said several times, we would absolutely also entertain a scaled personal insurance carrier,” Saunders said Thursday. “And in fact, when you think about our ability to be a better owner and generate synergies, it’s really on the personal lines platform that the big synergies would come.”

Saunders has said the company has been working hard to rebalance its personal lines book to bring it more in line with the industry average between auto and personal lines.

“In personal property, we wanted to strategically shift the mix over the last couple of years,” Saunders said. “And so, if you look at our weight between auto and property, we were more like 70% auto, 30% property. The industry is 60/40.

“Over the last three years, we’ve now shifted [our balance of auto and property] to be in line with the industry.”

That means growth in the personal property lines. And growth more in terms of pricing for catastrophic weather events, as opposed to increased numbers of policies sold.

“This year, we’ve been focused on taking rate….which we’ve been doing, but not a lot of unit count,” Saunders said. “And the reason there is, we’re growing in areas we like, and in the more Cat-exposed zones, we’ve been pruning the portfolio. So the mix of business is shifting, which I think makes us a little less exposed to Cat business.”

 

Feature image courtesy of iStock.com/Kunakorn Rassadornyindee