Holiday Shopping Season (December 01, 2010)

This holiday shopping season was a busy one in Canada – and not just for consumers.Canadian property and casualty companies were clearly in a shopping mood, with several major deals or potential deals announced in December.As we go to press, Desjardins Financial Group, including its property and casualty insurance company Desjardins General Insurance, announced a $443-million cash offer for Western Financial Group.Heading into the deal, Desjardins is the leading P&C insurer in Quebec and the seventh-largest property and casualty insurer in Canada. It has a portfolio of 1.8-million policies in force, a business volume of $1.5 billion and assets of $2.9 billion.Western Financial owns ‘The Network,’ composed of several western Canadian-based insurance agencies, including SecuriCan General Insurance and Falkins Insurance, to name a few. It also manages Western Financial Insurance, underwriters of pet insurance. Combined, The Network and Western Financial Insurance reported operating income exceeding $25 million as of 2010 Q3.That deal is expected to close in 2011 Q2.Just prior to Desjardins’ big announcement, broker Hub International had two busy days on Dec 20 and 21. Hub acquired the assets of hospitality insurer Leeds Insurance Brokers in Toronto and certain operations of the Phoenix Insurance Group operations in Alberta.Hub expected to acquire the Grande Prairie operations of Phoenix by the end of 2010, and the Edmonton, Red Deer, Hinton and Drayton Valley operations of Phoenix in the first quarter of 2011. Phoenix Group Risk Management Inc. is not included in the transaction.Also in December, the CG&B Group Inc. announced it is acquiring D. M. Edwards Insurance Group Limited and Car Insurance Brokers of Canada Inc. With that acquisition, the CG&B Group will have 195 employees and an annual premium volume expected to reach $160 million in 2010.Not to be outdone, in the world of independent insurance adjusting, the full-service national claims management firm McLarens Canada acquired Upper Canada Adjusters Inc. In doing so, McLarens promised to increase its footprint in the Canadian insurance adjuster marketplace over the next two years.All of these deals happened about two months after RSA Canada announced in October that it would be acquiring GCAN Insurance Company for $420 million. At that time, it was the second-largest Canadian P&C acquisition over the past decade. And these are all of the done deals. However, one of the biggest deals announced in December is one that hasn’t happened yet. The Economical Mutual Insurance Company announced in December it is planning to demutualize, which, if it happens, would unlock approximately $1.2-billion in policyholder surplus. This might involve an initial public offering or – you guessed it – a merger or acquisition. (For more on this, see Page 42.)What does this flurry of mergers and acquisitions (M&A) activity mean? It means many things. For one thing, it means the market is saturated with capital and Canada has not had many major claims to which to apply it. (An absence of catastrophes isn’t a bad thing, by the way.)It means it is difficult for companies to gain market share by growing their books of business through increased premium sales. That leads to growth by acquisition as an alternative.M&A activity has been predicted in Canada for the past five years, but never really happened. So what’s changed? Some believe the market crash of 2008-09 affected companies’ bottom lines unevenly, which put some companies in a position to buy others. With investment income slowly returning to form, companies on the prowl for acquisitions can shore up their underwriting results – which are still not all that great, as the federal solvency regulator reports – while simultaneously employing surplus capital to leverage a deal.  Whatever broke the logjam, M&A activity has  clearly arrived by storm. Perhaps it’s fitting we have suddenly seen this explosion of buying during the holiday shopping season.