How will the mega-merger affect brokers?

Analysis: Brokers and analysts air their views on Canada’s biggest acquisition announcement since 2011. What the big deal does and does not do….

Brokers are giving an initial thumbs up to Traveler’s recent $1.1-billion acquisition of The Dominion, a long-time advocate of the broker channel in Canada.

“One thing that would have surprised me is if Dominion had made any decision that did not benefit the broker channel,” said Randy Carroll, CEO of the Insurance Brokers Association of Ontario (IBAO). “And from what I can see, they made a decision that totally supports the broker distribution channel.”

The deal matches Travelers’ commercial lines business – which mainly serves mid-sized and large-sized businesses – with the mid-sized and smaller commercial lines business of The Dominion. Additionally, the deal gives Travelers, also a broker-focused company, a personal lines presence in Canada that it has not had for several years.

“When you sit back and you look at all of the mergers and acquisitions you’ve seen on the insurer’s side, this one to me is probably the most interesting,” said Carroll.

“We have primarily a U.S. player venturing back into the Canadian marketplace. Traveler’s Canada has always been there, but they have been there in the capacity of mid-sized commercial, surety and liability. This one is interesting because the acquisition doesn’t cause the two companies to step on each other’s toes.”

Dan Danyluk, CEO of the Insurance Brokers Association of Canada (IBAC), agreed that the two companies’ commercial lines offerings were “a good fit.” 

“My sense was that Travelers was mid-market and up, and Dominion was mid-market and down,” he said, adding that everyone defines mid-market differently. “It means you have the full orchestration in terms of products and market. This orchestra has a chance to play very well.”

Danyluk sees many good things coming out of the acquisition, including strong leadership teams at both companies. Also, the new entity has mitigated its risk and spread it across the country.

“Probably the only piece missing, and if they had all of their wishes, would be a profound presence in Quebec,” said Danyluk. “Quebec personal lines would be an area that Dominion management would very much enjoy.”

Joel Baker, president of MSA Research, said he didn’t expect the deal to change Canada’s property and casualty insurance market fundamentally, at least not right away.

“Unlike Intact’s acquisition of Axa [Canada in 2011], this deal does not combine two similar Canadian behemoths,” he said. “Travelers in Canada is a mid-sized commercially focused company with about $310 million in direct premiums written [DPW], whereas Dominion is largely a personal lines-focused firm about four times the size ($1.3 billion in DPW in 2012).

“To put this into perspective, Travelers, as a global group, had revenues north of USD$25 billion last year, so Dominion is about 5% of that.”

The balance in company’s risk portfolio will ultimately be subject to the stability of the Ontario auto insurance market, Baker added.

“The main question is whether Ontario auto, which comprises 50% of Dominion’s book, will behave,” Baker said. “If it reverts to form and starts deteriorating again, it will greatly challenge Dominion’s ability to be accretive to Travelers….No other foreign writer has come into Canada on a personal lines play in decades, and for good reason.”

Finally, there remains a question about how the new company will be branded.  The Dominion, an abbreviation of The Dominion of Canada General Insurance Company, has been a brand name recognized in Canada since Confederation in 1887. Travelers, on the other hand, is a worldwide name with international clout. 

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