Canada’s largest property/casualty insurer, Intact Financial Corp., has agreed to acquire U.S. specialty insurer OneBeacon from White Mountains Insurance Group for US$1.7 billion. The merger will create a North American specialty lines insurer with more than $2 billion in specialty lines premiums serving small and medium sized businesses.
Under the terms of the all-cash deal, OneBeacon shareholders will receive US$18.10 cash per common share, a 14 percent premium based on OneBeacon’s closing stock price on the NYSE of US$15.89 as of May 1, 2017 and a 15 percent premium to the volume weighted average price over the last 30 days. This represents an aggregate cash consideration of approximately US$1.7 billion ($2.3 billion). In addition, OneBeacon debt of approximately US$275 million will remain outstanding.
The transaction has been approved by the boards of directors of both companies and is subject to approval by OneBeacon’s shareholders.
The deal combines Intact’s commercial lines track record and data, claims and digital expertise with OneBeacon’s specialty lines capabilities. Intact said the acquisition bolsters its Canadian business with new products and cross-border capabilities, and better positions it to compete with international insurers. Intact expects to also benefit from top and bottom line growth opportunities resulting from broader geographic and line of business diversification.
OneBeacon reported US$1.2 billion in gross written premium and net income of US$107 million in 2016, along with a 2016 combined ratio of 97.3. It writes specialty coverages for technology, healthcare, government, entertainment, financial services, ocean marine and other risks.
Intact has about a 17 percent share of Canada’s $47 billion home, auto and business insurance market. It sells through brokers as well as directly via the Internet and call centers. Intact’s US$628 million in specialty business includes trucking, farm, professional and management liability, equipment breakdown, auto and other risks. Its specialty business is eight percent of its entire book of business that includes commercial (24 percent) as well as personal auto (44 percent) and personal property (24 percent) business.
“Today, we’ve taken an important step in building a world class P&C insurer,” said Charles Brindamour, CEO of Intact, in a prepared statement. “OneBeacon is a strong strategic fit for Intact, with deep expertise in commercial and specialty lines, and shared values. We see significant growth potential from the combination of our specialty lines operations and we look forward to welcoming OneBeacon employees to the Intact family.”
Mike Miller, CEO of OneBeacon Insurance Group, said the deal makes sense for OneBeacon. “The opportunity to leverage Intact’s deep technical, financial and technology capabilities makes this combination the perfect next step in the OneBeacon journey. Together, we will accelerate our pursuit in creating a leading specialty insurer in North America,” Miller said.
Intact secured the conditional purchase of a reinsurance agreement in which a reinsurer will assume 80 percent of any negative development in excess of US$74 million with respect to OneBeacon’s claims liabilities as of December 31, 2016. The maximum amount payable by the reinsurer is US$200 million.
Intact said it intends to finance the acquisition using a combination of $700 million of equity financing, $700 million of excess capital and $1.0 billion in bank term loans, medium term notes and preferred shares.
The Intact-OneBeacon transaction is expected to close in the fourth quarter of 2017, subject to customary closing conditions, including OneBeacon shareholder approval and receipt of required regulatory approvals. White Mountains has agreed to vote in favor of the transaction.
In the 1980’s the Canadian insurer acquired three regional insurers – Commerce Group and Belair in Quebec, and Western Union in Alberta. In 1991, it brought all of its insurance companies under the umbrella of ING Canada.
Its growth continued with the acquisition of Guardian Insurance’s business in Canada in 1998, followed by the acquisition of Zurich Canada’s home, auto and small and medium business insurance portfolio in 2001. In 2004 it acquired Allianz Canada. That was soon followed with an initial public offering and the start of trading on the Toronto Stock Exchange with ING Group retaining 70 percent ownership. In 2009 the name was changed to Intact Financial Corp. More recently Intact acquired AXA Canada, the sixth largest property/casualty insurance company in the country.
OneBeacon was formed in 2001 when White Mountains Insurance Group Ltd. acquired the former CGU’s U.S. property/casualty business from Aviva. In 2006, White Mountains sold 27.6 million of OneBeacon’s common shares in an initial public offering, or 27.6 percent of OneBeacon’s common shares at the time of the initial public offering. As of May 2, 2017, White Mountains owned 75.7 percent of OneBeacon’s common shares, representing 96.9 percent of the voting power.
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