Intact Financial Corporation and Tryg A/S Complete Acquisition of RSA Insurance Group PLC
Building a Leading P&C Insurer
- Expands our leadership position in Canada with a broader customer offering
- Bolsters our leading specialty lines platform and brings international expertise
- Entry into the U.K. and Ireland at scale with a strong and seasoned team
- Increases investment in our core capabilities to strengthen our outperformance
- High single digit NOIPS accretion expected in the first 12 months, increasing to upper teens within 36 months
- Maintaining mid-teens OROE target and BVPS to increase by over 20% at close
- Strong total capital margin at over $2 billion following close and debt-to-capital ratio expected to reach 20% within 36 months
Intact Financial Corporation (TSX: IFC) (“Intact” or the “Company”) announced today that, together with Tryg A/S (CPH: TRYG) ("Tryg"), it has completed the acquisition (the "Acquisition") of RSA Insurance Group plc. (“RSA”), having received all required approvals.
"Bringing together Intact and RSA will expand our leadership and accelerate our strategy as we continue to focus on outperformance across our business," said Charles Brindamour, Chief Executive Officer, Intact Financial Corporation. "Our teams have worked hard and diligently since we announced the deal to plan the integration and transition process, and we are now ready to combine our businesses and start delivering on our financial objectives. We are delighted to welcome RSA employees into the Intact family. Together, we will continue to focus on delivering second-to-none customer experiences and creating significant value for our shareholders.”
Pursuant to the Acquisition, Intact retains RSA's Canadian, U.K. and International entities, Tryg retains RSA’s Swedish and Norwegian businesses, and Intact and Tryg co-own RSA's Danish business.
With the Acquisition, Intact is taking a significant step to accelerate its strategy and drive significant value creation.
Expands leadership in Canada
Intact’s leadership position in Canada expands with an approximate 30% increase in premiums to an estimated $13 billion annually, representing close to two-thirds of the Company’s aggregate premium base. The Company expects to continue to generate outperformance in Canada by leveraging its expertise in data, pricing and segmentation and through further internalization of its claims service. The Acquisition broadens Intact’s customer base and product suite, enhancing its ability to deliver second-to-none customer experiences to people and businesses across Canada. With Johnson Insurance, Intact is entering the affinity market with a leading platform. The transaction also improves the Intact Insurance product suite,
making the combined Company better positioned to service the broker channel, with expanded personal and commercial lines offerings.
Creates a leading specialty lines platform
Intact bolsters its North American specialty lines platform by adding international capabilities, scale and expertise in existing lines, as well as adding new verticals. The specialty lines platform will grow by approximately 30% to over $4 billion of annual premiums and will include leading global franchises in marine and specialty property. The Acquisition also adds a well-known Global Network to the Specialty platform, which facilitates the placement of tailored, multinational insurance programs through partnerships, allowing the Company to better service customers globally.
Entry into the U.K. and Ireland at scale
In the U.K. and Ireland, which represent approximately $4.4 billion of annual premiums, the Company will look to strengthen its leading position and continue the underwriting momentum in the business. Intact will build on the well-recognized RSA brands and scale in home and commercial lines, while leveraging its core competencies to continue to create best-in-class capabilities. In the near term, the fundamental pillars of the outperformance strategy are to optimize the underwriting performance, focus the footprint, and invest in data and technology. Beginning in the third quarter of fiscal 2021, the operating results for the U.K., Ireland, Europe and Middle East businesses will be consolidated and reported in the U.K. & International segment, which is expected to have approximately $5.1 billion of annual premiums.
Strengthens ability to outperform
The Acquisition increases Intact’s premiums by approximately 70% and enables further investment in the Company’s core capabilities of data, risk selection, claims and supply chain management to sustain and drive increased outperformance across the markets in which it operates.
Financially compelling with significant shareholder value creation
The Acquisition provides a unique opportunity to create significant value for Intact’s shareholders, with an expected internal rate of return (“IRR”) above the Company’s 15% threshold.
The Acquisition is expected to generate high single digit net operating income per share (“NOIPS”) accretion in the first 12 months following closing of the Acquisition, increasing to upper teens within 36 months. The expected NOIPS accretion is driven by adding RSA’s profitable business to Intact and by generating over $250 million of expected pre-tax annual run-rate synergies within 36 months. Not included in the synergies are anticipated loss ratio improvements, driven by the benefit of the Company’s data and analytics expertise.
Intact expects its operating ROE (“OROE”) to be in the mid-teens level in the medium term. Book value per share (“BVPS”) is estimated to increase by over 20% on the closing of the Acquisition, reflecting the equity issued to finance the Acquisition and the estimated current fair value of the net assets acquired.
The Acquisition supports Intact’s financial objectives to grow NOIPS by 10% yearly over time and exceed the industry ROE by 500 basis points annually.
Strong capital position maintained
Intact will maintain its strong capital position, with an estimated total capital margin above $2 billion and solid regulated capital ratios in all jurisdictions, including the new U.K. & International perimeter. Intact’s pro forma debt-to-capital ratio is expected to be below 26% as of June 30, 2021 and reach its target of 20% within 36 months.
Issuance of common shares pursuant to subscription receipts
A portion of Intact’s approximately £3.0 billion ($5.2 billion) payment for the Acquisition was financed with the net proceeds from the private placement of approximately $3.2 billion of subscription receipts (the “Cornerstone Subscription Receipts”) to Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan Board, and from an underwritten private placement of approximately $1.25 billion of subscription receipts (the “Underwritten Subscription Receipts”) to accredited investors in Canada and other exempt purchasers.
Upon closing of the Acquisition, the common shares of Intact issuable pursuant to the 23,791,824 Cornerstone Subscription Receipts issued by Intact in November 2020 and the 9,272,000 Underwritten Subscription Receipts issued by Intact in December 2020 were automatically issued through the facilities of CDS Clearing and Depository Services Inc. in accordance with the terms of the Cornerstone Subscription Receipts and the Underwritten Subscription Receipts, as applicable, on a one-for-one basis. This issuance of common shares increased the number of Intact’s outstanding common shares to approximately 176.0 million.
Trading in the Underwritten Subscription Receipts on the Toronto Stock Exchange (the “TSX”) (TSX: IFC.R) will be halted effective prior to opening of trading on the TSX today and the Underwritten Subscription Receipts will be delisted as at the close of business today. The transfer register maintained by the subscription receipt agent for both the Cornerstone Subscription Receipts and the Underwritten Subscription Receipts will be closed as at the close of business today. The common shares issued in respect of the Cornerstone Subscription Receipts and the Underwritten Subscription Receipts are expected to begin trading on the TSX today.
In addition, pursuant to the terms of both of the Cornerstone Subscription Receipts and the Underwritten Subscription Receipts, a dividend equivalent payment of $1.66 per subscription receipt, less applicable withholding taxes, will be paid to former holders of such subscription receipts, which is an amount equal to the aggregate cash dividends declared on Intact’s common shares for which record dates have occurred during the period from issuance of the subscription receipts to June 1, 2021, the closing date of the Acquisition. The dividend equivalent payments will be made on or about June 4, 2021.