Desjardins billion-dollar bet on State Farm paying off

The co-operative released its second quarter earnings late last week and a quick look under the hood suggests the acquisition is providing a big boost to not only its P&C business but also to its wealth management and life and health segments

Desjardins now have two quarters with State Farm’s Canadian operations in the books and the results so far are exactly what CEO Monique Leroux was looking for when she made the acquisition announcement a year ago January.
While its P&C segment was the major beneficiary of the deal, which instantly made it the second-largest insurer in the P&C space, its wealth management and life and health businesses have also benefited greatly as the latest results attest.
In Q2 2015 Desjardins’ wealth management and life and health segment business generated $134m in surplus earnings. A year earlier State Farm wasn’t on the books.
In Q2 2015 Desjardins’ overall surplus earnings were $629m, 41% higher year-over-year. Of the $183m increase in surplus earnings, $130m is attributable to State Farm. That’s 71% of the overall increase, Desjardins’ existing businesses generating the remaining 29%.
So, how much of a contribution did State Farm make to both its P&C and wealth management and life and health segments in Q2?
In Q2 2014, Desjardins’ P&C business generated $61m in surplus earnings, or 14% of the total surplus earnings of $446m. In Q2 2015, P&C generated $194m. If the existing P&C business contributed a similar 14% of total surplus earnings, the contribution from State Farm to P7C earnings would have been around $108 million.
This suggests by simple subtraction that State Farm contributed $22 million ($130 million less $108 million) in the second quarter to the wealth management and life and health business.
P&C may be the big story but don’t discount the importance of the wealth and life and health segments to Desjardins. Results suggest it just might have got an added life and health bonus in the deal.
"I'm very satisfied with these results which reflect strong growth in Canada, particularly in insurance," said Monique F. Leroux, President and Chief Executive Officer of Desjardins Group.