Travelers Eyes Canada Growth with $1.1B Acquisition of The Dominion

June 10, 2013

The Travelers Companies Inc. said it has agreed to acquire The Dominion of Canada General Insurance Co. from E-L Financial Corp. Limited for approximately $1.1 billion in cash with an eye on expanding its commercial lines business in particular.

The announcement said that The Dominion and Travelers’ Canadian operations will be integrated and the combined organization will remain headquartered in Toronto.

The Dominion is one of Canada’s largest auto, home and business insurers. The company distributes exclusively through independent brokers.

“This transaction is consistent with our strategy to make thoughtful investments in attractive markets outside the United States,” said Jay Fishman, chairman and CEO of Travelers.

He said the transaction should have no significant impact on 2013 earnings per share and will be slightly accretive to 2014 earnings per share.

Brigid Murphy, president and CEO of The Dominion, will continue in these roles at the combined organization. George Petropoulos, president and CEO Travelers Canada, will help Murphy lead the new organization as vice chairman. In addition, Petropoulos will be executive vice president, Bond and Financial Products.

The Dominion reported that for the year 2012, net income was $65.5 million compared to $25.2 million in 2011. The increase was mainly due to the realized gain on the sale of The Dominion’s head office property, better underwriting results and higher net realized investment gains. The combined ratio was 107.0 for 2012 compared to 108.3 for 2011.

Travelers, which distributes through independent agents, cited The Dominion’s independent broker network as a strength. “The Dominion’s extensive distribution network and established customer base provide us with an exceptional platform for expanding our commercial lines business and generally strengthening our presence in Canada,” said Alan Schnitzer, vice chairman and head of Travelers’ Financial, Professional & International Insurance business segment.

Mark Dwelle, an analyst at RBC Capital Markets, told Bloomberg News that the deal gives Travelers immediate scale in Canada. “The laws are fairly similar and a lot of the customers overlap as well. A lot of Canadian companies do business in the U.S. and vice-versa. The language is the same,” he said.

The transaction is expected to close in the fourth quarter of 2013, subject to regulatory approvals and other customary closing conditions. Travelers said it will fund the transaction through a combination of debt and/or preferred stock financing and internal resources. Based on this financing plan, the company said it does not believe that the transaction will have a significant impact on anticipated share repurchases for 2013 or 2014.

The deal is another foreign acquisition for Travelers. In 2011, it acquired 43 percent interest in Brazilian surety insurer JMalucelli.

Skadden, Arps, Slate, Meagher & Flom LLP and Gowling Lafleur Henderson LLP served as legal advisors to Travelers.

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