What Canadian MGAs think about the proposed Intact-RSA merger

On the day Intact made its joint offer with Denmark-based insurance giant Tryg A/S to acquire RSA plc for Cdn$12.3 billion official, a Canadian association of managing general agencies (MGAs) expressed concern about the deal’s potential impact on market choice during a hard market in commercial lines.

If approved, the proposed mega-merger would see Intact, Canada’s largest P&C carrier (with a market share of just over 15% in 2019), acquire RSA Canada, Canada’s seven-largest P&C insurer (approximately a 4% market share in 2019).

“Should this acquisition go through, MGAs will see one less option for markets available to them to write business,” CAMGA managing director Steve Masnyk commented in a media statement about the proposed deal. “One less choice in the marketplace is never a good thing, especially when it comes to hard-to-place risks and niche-type coverages.”

RSA Canada offers insurance products and solutions for small to mid-sized enterprises (SMEs), mid-market enterprises, and Global Specialty Lines. Its book of commercial specialty business includes property, energy, equipment breakdown, professional E&O, commercial fleet auto, claims service, and risk control services, among others.

In formally announcing the acquisition offer Wednesday, Intact said the deal would bolster its offerings in many key commercial specialty lines segments.

iStock.com/sesame

“The combined specialty lines business [after the proposed merger] is projected to grow by approximately 30% and represent over $4 billion in annual premiums,” Intact announced in a release, which also confirmed that the boards of Intact, RSA and Tryg have all unanimously recommended the deal. “The business will benefit from an expanded product offering with strong global franchises in lines such as marine, specialty property, and E&O/D&O. The specialty lines platform will also benefit from a broader distribution footprint, providing existing specialty franchises with access to new regions.”

Reflecting a broader discussion within the industry about market concentration in Canada arising from the proposed merger, CAMGA says Intact’s acquisition of RSA Canada would effectively consolidate the Canadian commercial insurance market in a significant way, leaving MGAs with one less major market to provide capacity. This comes at a time when underwriting capacity in several lines of commercial insurance is becoming scarce.

“With insurers quietly exiting certain lines of business, MGAs fill that demand and capacity is certainly a concern,” commented CAMGA chairman Larry Shumka. “That being said, we see this development as an opportunity for other markets to step in to fill this void.”

MGAs act somewhat like “brokerages for the brokers,” helping retail brokers find coverage for clients in hard-to-place commercial lines. They not only help retail brokerages place coverage for clients, but they are also authorized to underwrite coverage in specific instances. To do that, they need capacity, as Masnyk notes.

“These types of [specialized] risks, especially in the commercial arena, are by their very nature — in addition to being affected by the current hard market — difficult to place. However, MGAs are hopeful that other insurers will see this development as an opportunity to re-examine their capacity appetites and consider more business underwriting through the MGA distribution network.”