Definity Financial looks to expand in Canadian insurance markets global players have exited

Open this photo in gallery:

Definity Financial Corp. chief executive Rowan Saunders is ready to boost the newly public company’s market share through acquisitions after the property and casualty insurer raised $2.4-billion in a stock offering earlier this week.

The parent company of Economical Insurance Co. closed Canada’s largest initial public offering so far this year – and the third-largest IPO in the history of the Toronto Stock Exchange – selling about $1.6-billion worth of shares on the public market. The company also sold another $759-million worth to two institutional buyers through a private placement. Healthcare of Ontario Pension Plan bought $507-million worth and Swiss Re Investments Holding Co. Ltd., a reinsurer, bought $252-million.

It took nearly a decade of work to take the company public, which at times involved heated debates among policy holders who owned the old mutual company. But the successful IPO means Mr. Saunders can now begin the work to win a top-five spot among P&C insurance companies in Canada – a goal he set out several years ago.

Definity raises $1.4-billion in Canada’s largest IPO this year, shares jump 24% after insurer times the market almost perfectly

Definity Financial plans $1.25-billion offering as Economical Mutual transforms into a public company

Currently, Definity is the seventh-largest P&C insurer and is the parent company of Economical Insurance Co., Family Insurance Solutions Inc., Petline Insurance Co. and Sonnet Insurance Co. – a fully digital insurance platform that sells directly to consumers.

To gain market share, Mr. Saunders say he expects to increase the company’s annual revenue by about 10 per cent – twice the historic expansion rate of the industry in Canada.

“As well, we know that, in order to reach top five, we need to participate in some form of merger and acquisition activity, which is difficult to predict and clearly quite opportunistic,” Mr. Saunders said.

But the P&C industry has been consolidating, with several foreign-owned insurers selling their Canadian operations to domestic companies, owing in large part to unpredictable profitability in auto insurance. The environment is ripe for opportunity, Mr. Saunders said.

“Consolidation has been happening in the P&C industry for the past couple of decades, and we think that the trend of consolidation will continue here in Canada,” he said in an interview with The Globe.

To increase Definity’s market share – which currently stands at 4.6 per cent – Mr. Saunders is aiming to expand into markets that large global insurers have been exiting, such as corporate errors and omissions insurance and other commercial lines, including construction and manufacturing insurance. Currently, the company’s commercial business makes up about 25 per cent of its annual premium revenue. Mr. Saunders wants to see that grow to 30 per cent.

“These are high-priority areas for our company,” he said.

Ontario provided 59 per cent of the Waterloo-based company’s premiums in 2020. In terms of sectors, automobile policies accounted for about half the premiums – a line of business that has performed well owing to reduced driving during the COVID-19 pandemic.

But the recent resurgence of daily traffic has seen an increase in the number of accidents, although they are still below prepandemic levels, Mr. Saunders said.

“We are anticipating automobile claims to increase in 2022 and 2023, but much of the industry has been providing significant relief and rate reductions to drivers, so there will be an offset as claims normalize and relief payments come to an end,” he added.

In addition to celebrating the company’s IPO, the insurer will mark 150 years in the business on Thursday. The company started the process of going public nine years ago, with policy holders finally approving the plan in May. A mutual insurance company is owned by its participating policy holders, whose stake is typically converted into share ownership when the company demutualizes.

As a public company, 61 per cent of Definity’s shares will be owned by investors who bought shares through the IPO, 8 per cent will be owned by eligible policy holders and 31 per cent will be owned by the institutions that bought shares through the private placement.

All proceeds from the IPO will be paid out to eligible recipients in the coming weeks as part of the demutualization.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.