State Farm acquisition a ‘power play,' says insurance industry veteran

Desjardins is now undeniably one of the channel's big boys, says a respected industry veteran and former CEO of Dominion of Canada General Insurance, pointing to the player's game-changing acquisition this month.

State Farm acquisition a ‘power play,' says insurance industry veteran
Desjardins has made a statement that it is one of the big boys in the insurance channel, says respected industry veteran and former CEO of the Dominion of Canada General Insurance, George Cooke.

“It is going to create quite a power house for Desjardins, if they can actually pull the integration off,” says Cooke. “It’s big news. I haven’t been able to sit and do numbers, but I gather it makes them the second largest company in the P&C space, behind Intact.”

Cooke shared his take on last week’s blockbuster announcement. And, although Cooke may be a year out of the insurance industry, he still has his finger on the pulse of what is happening in the insurance channel.

“There were rumours for several months all over the place that Desjardins was looking,” says Cooke, who – among a laundry list of board titles and directorships – is mostly kept busy as chair of the board at OMERS and president of Martello Associates Consulting. “I am surprised to some extent that State Farm sold; State Farm made such a substantial contribution of funds a year or two ago when they injected a huge amount of capital and it looked like they were committed to being here (in Canada).

“If they had done this two years ago, it would have surprised me less.”

As a result of last week’s announcement, Desjardins Group will become the second largest property and casualty insurance provider in Canada with annual gross written premiums of approximately $3.9 billion, up from approximately $2 billion. The transaction also strengthens Desjardins Group's position as the fourth largest life and health insurer in Canada, with the deal expected to close in January of 2015. (continued.)


Following the closing, Desjardins will operate the newly acquired State Farm Canada businesses under the State Farm brand for an agreed license period.

State Farm will make a $450 million investment in non-voting preferred shares into Desjardins Group's post-closing property and casualty insurance business, which will include the newly acquired State Farm Canada property and casualty operations.

Speaking of the company that remains near and dear to his heart – The Dominion – Cooke points to the ongoing trend in the industry of mergers and acquisitions, and what it bodes for the future.

“We may be in for quite a period of change in the insurance space,” says Cooke, “and of course the recent acquisition by Travelers of The Dominion is another substantial, financially strong move. They bought something that was roughly four times their own size.

“In a way this is a new player (Desjardins),” Cooke points out. “It looks like you are going to have some action for a while.” (continued.)


Although it may appear the channel is becoming concentrated in fewer hands, says Cooke, the numbers argue otherwise.

“Part of the story that isn’t told, I think, means that it (the channel) isn’t more concentrated than it is,” says Cooke, “because competitors on the life-side and the banking-side remain quite, quite ‘un-concentrated,’ if you will.”

He points to Intact’s market share sitting in the 11 or 12 per cent range, but the next closest competitors (Aviva, and now Desjardins) holding only a 5, 6 or 7 per cent market share.

“It is reasonably un-concentrated, and part of the reason is ownership,” says Cooke. “The fact that there is no easy way to de-neutralize; so now you are seeing State Farm, assuming it is an asset sale, being taken over. It is not a new way of doing it, but it is the first major way that that’s been done in the P&C business with a neutral for some time.”

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