Canada Reports 20-Year High in Overseas Investment in Insurance M&A

By and | December 17, 2020

Canadian firms’ overseas investment in insurers hit a 20-year high this year boosted by Intact Financial’s joint agreement last month to buy British insurance group RSA for 7.2 billion pounds ($9.6 billion) and market participants expect more deals in 2021.

The RSA deal is one of the largest examples of insurers pulling in buyers this year, as a sharp rise in premiums has outweighed hefty coronavirus pandemic claims.

International deals in insurers involving Canadian investors rose to $11.6 billion in 2020, the highest in at least two decades, according to data from Refinitiv.

That places Canadian investors as the third biggest investors in insurance deals, behind the UK and the United States, according to the data. Last year, Canadian investors were the fifth largest in the space.

Transactions dwarfed $794 million of similar deals last year and $218 million in 2018, the data showed.

“It’s no secret that we are in a pretty good part of the cycle from the [property and casualty insurance] pricing environment,” said Geoff Bertram, head of the Financial Institutions Group at Toronto-Dominion Bank.

Premiums were already rising in the property and casualty insurance sector after heavy losses from natural catastrophes and the increasing size of awards in legal claims. Insurers typically raise their prices after paying large claims.

Non-life insurers globally will see more than $100 billion in claims this year from issues such as event cancellation and business interruption due to the pandemic, according to Lloyd’s of London.

That has driven premiums up by a record high 20% in the third quarter, according to insurance broker Marsh.

“Disasters tend to be quite good for insurers,” said one UK-based banker. “When you had Hurricane Katrina in New Orleans, that in retrospect was a godsend – it meant that rates went through the roof.”

Hedge funds, known for often spotting trends ahead of the market, said earlier this year they were betting on the insurance industry, drawn in by sharp premiums.

Following on their heels, Canadian pension funds Caisse de dépôt et placement du Québec (CDPQ), Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan Board invested in the RSA purchase, contributing C$1.5 billion, C$1.2 billion and C$500 million respectively to Intact’s payment for RSA.

Other deals in the sector in 2020 included American Equity Investment Life Holding Co. inking a strategic partnership with Canada’s Brookfield Asset Management Inc and new Lloyd’s of London insurer Inigo Limited raising $800 million from a group of global investors, in which CDPQ took part.

The pandemic is driving more customer demand for life insurance, according to a recent Capgemini report, and insurance companies are expected to be attractive investments in 2021.

“Both the insurance carrier business and the insurance broker and distribution business have historically been quite fragmented,” said TD’s Bertram. “We do think that fragmentation will probably lessen over time as we continue this era.”

Well-capitalized Canadian insurers may be good acquirers of global businesses, he added.

Canadian insurers, forbidden by the financial regulator from buying back shares or hiking dividends, have amassed billions in excess capital this year, giving them additional firepower for acquisitions.

Many Canadian insurers have established footholds abroad, setting them up to expand operations in other regions.

“[Canadian insurers] will take the chance when they see it to invest in a market that will be interesting and give them something else,” said William Charnley, partner at law firm King & Spalding.

(Reporting by Maiya Keidan in Toronto and Carolyn Cohn in London; additional reporting by Nicola Saminather; editing by Richard Pullin)

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