Intact CEO discusses next steps for M&A growth

Intact has fully digested its acquisition of RSA Canada, once Canada’s seventh largest insurer, and now remains committed to its objective of growing to a 25% to 30% market share in Canada.

“When it comes to M&A, [our] Number 1 area of interest is Canada,” Intact Financial Corporation CEO Charles Brindamour told CIBC Capital Markets analyst Paul Holden in a virtual “fireside chat” on May 14. “We think we’ve got plenty of room to grow in the Canadian context as an insurer and as a distributor. This is where the first [M&A] dollar goes.”

Holden asked Brindamour a number of questions about Intact’s future M&A plans.

Intact has already signalled its intent to expand its BrokerLink brokerage distribution network to $5 billion in direct premiums written by the end of 2025. Holden and other investors asked about the company’s intent to expand its growth on the insurance side as well.

“In terms of M&A, North America, I would say you know, that is where the focus is, and we’re absolutely ready to do something,” Brindamour said. “But at the end of the day, we have very well-established economic standards; it needs to be strategic in nature, and we don’t do deals just to do deals or to create…punctual accretion.”

Holden asked Brindamour about its balance sheet capacity and excess capital. Such capital can be employed to make a deal.

“The capital margin at the end of [2024] Q1 was $2.7 billion,” Brindamour reported, adding that any debts absorbed as part of the deals for RSA Canada and last year’s acquisition of Direct Line Insurance Group plc in the U.K. are “behind us.” He also noted the company has disposed of its RSA U.K.’s pension liabilities last year. “So, there’s plenty of firepower on the balance sheet, as far as I am concerned, to transact in this environment,” Brindamour said.

To put Intact’s capital margin into in perspective, Intact acquired Axa Canada in 2011 for $2.6 billion. At the time, Axa Canada was the sixth-largest P&C insurer in Canada.

In 2020, Intact paid $5.1 billion to acquire RSA’s Canada, U.K. and International operations. RSA Canada was seventh in Canadian P&C insurance market share at the time.

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Despite Intact’s sizeable war chest to make a deal, Brindamour said “the Number 1 opportunity is organic growth.” He noted hard market conditions remain prevalent in Canada’s P&C sector, and the company is already comfortable with its margins in the areas in which it operates.

Brindamour did not mention any specific deals on the burner.

Hypothetically, money would be the only limit to the size of deal it could make to reach an overall 30% market share. If money were no object, Intact could acquire any one of Canada’s Top 10 companies on the way to reaching its objective of a 25% to 30% market share.

Based on overall market share in Canada by insurance revenue, Intact ranked first in the country in 2023 with a 16.8% share, per MSA Research stats to be published in Canadian Underwriter’s forthcoming 2024 Stats Guide. The Number 2 company in Canada in 2023 was Desjardins Group with a 10.35% market share. Third was Aviva Canada, with an 8.97% market share.

One audience member during the fireside chat asked Brindamour if he had any concerns about Intact bumping up against the Competition Bureau’s threshold for antitrust regulations. The Bureau scrutinizes any deals giving Canadian companies higher than a 35% market share in areas in which they operate.

“Our market share in the products where we operate, in home, auto and commercial lines, is in the 20 to 25% sort of zone,” Brindamour answered. “There are segments of the market where we are underrepresented. For instance, in other than the SME [small and medium-sized enterprises] and mid-market, we are in the in the teens.

“In aggregate, I think we can grow our franchise by 50% before…[concentrating] on organic growth as the primary growth engine. The threshold of antitrust regulation is about 35% by product and provinces where you operate, so I think it’s uneven across the country.

“But plenty of room in my mind to grow our operation meaningfully and eventually protect way more Canadians than what we do now.”

Feature image courtesy of iStock.com/zhuweiyi49