Economical Mutual Insurance Co.’s years-long quest to transform into a public company has ended by timing the market perfectly, allowing the automobile and property insurer to sell $1.4-billion worth of shares in Canada’s largest initial public offering this year.
By selling into strong markets, the new publicly traded company, which will go by the name Definity Financial Corp., was able to price its IPO at the top end of its marketing range of $22 a share. The company’s shares started trading on the TSX Thursday and jumped 24 per cent to close at $27.17.
Definity was also able to sell $707-million worth of shares to two institutional buyers through a private placement. Healthcare of Ontario Pension Plan bought $455-million worth of stock and Swiss Re Investments Holding Co. Ltd., a reinsurer, bought $252-million. In total, Definity raised $2.1-billion.
Despite strong stock markets, Canadian investors have been more selective of late about which IPOs they will buy. A number of technology IPOs saw strong demand over the last year, yet their shares struggled over the following months, deterring investors from lunging at every deal.
Automobile and property insurance, however, has been a rather strong business over the past few years, driven by lower automobile claims because fewer vehicles were on the road during the pandemic, as well as by stronger pricing for premiums. Partly because of these trends, shares of Intact Financial Corp., Canada’s largest player in the sector, hit a record high in August and are still trading around that level.
By contrast, the core business of life insurers has been more challenging because interest rates remain stubbornly low, which limits the returns they generate to pay for claims.
Despite its tailwind, Definity’s performance will likely hinge on automobile claims in the foreseeable future because this business comprises close to half of the premiums it writes. (The others are property and commercial lines.) Vehicle traffic is picking up, and last week Intact’s management team said it expects the recent strength of its personal auto business to cool.
As a public company, Definity will be the parent company of Economical Insurance Co., as well as of Family Insurance Solutions Inc., Petline Insurance Co., and Sonnet Insurance Co. – which is a fully digital insurance platform that sells direct to consumers.
At the moment, Definity is the seventh-largest insurer of its kind in Canada with a 4.6-per-cent market share. The majority of its business comes from Ontario, where it is based, with the province contributing 59 per cent of its premiums in 2020.
Based in Waterloo, Economical has been operating for 150 years and it started the process of going public nine years ago. In May, its policyholders approved the plan, and all proceeds from the IPO will be paid out to eligible recipients as part of the demutualization. A mutual insurance company is owned by its participating policyholders, 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 those who bought shares through the IPO, 8 per cent will be owned by eligible policyholders and 31 per cent will be owned by the institutions who bought shares through the private placement.
Definity’s chief executive officer, Rowan Saunders, has previously said he has ambitions to climb into the top five, in part through potential acquisitions and expansion outside Ontario, and has suggested that accessing capital in the public markets would help position Definity to compete against multinational companies as well as leading domestic insurers.
Canada’s property and casualty insurance industry has been consolidating over the past decade, as several foreign-owned insurers sold their Canadian operations to domestic companies. That has created a concentration of larger players, most of which have already demutualized.
With files from Clare O’Hara and James Bradshaw
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Tim Kiladze