Intact’s next big play could be a shot at Aviva’s Canadian business

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When Intact Financial Corp. announced a joint $12.3-billion takeover of British home and auto insurer RSA last month, chief executive officer Charles Brindamour made it clear that, over time, Intact will sell some of the businesses it is acquiring.

The next big deal from Toronto-based Intact could see Mr. Brindamour swap assets he doesn’t need – RSA Insurance Group PLC operations in Britain and Europe – for a prize he covets, rival Aviva PLC’s Canadian business. In a sector that’s consolidating, Intact’s CEO has an opportunity to play Rumpelstiltskin, spinning insurance straw into gold.

To understand where Intact is going, it’s important to understand where the company has been. Over 12 years as CEO, the 49-year-old Mr. Brindamour built Canada’s largest property and casualty insurer through a series of acquisitions and a disciplined approach to integrating and expanding the businesses. In the RSA takeover, which is expected to close in the second quarter of next year, Intact is combining forces with Denmark’s Tryg A/S.

Intact is paying $5.1-billion for RSA’s operations in Canada – if successful, the deal will give Intact 22 per cent of its home market. In addition, Intact expands into Europe by acquiring RSA’s business in Britain and Ireland, half its Danish division, along with specialty insurance lines and partnerships in Europe and the Middle East. Tryg is paying $7.2-billion for RSA’s Scandinavian operations.

Mr. Brindamour said in a press conference last month he plans to look at “strategic alternatives” for the Danish business. Intact is buying this unit to help Tryg avoid potential regulatory issues in its home market. Analysts said the Canadian insurer could sell the Danish holding to a Tryg-friendly investor such as a private-equity fund.

To date, Mr. Brindamour has said Intact plans to build on RSA’s British and Irish operations. Intact’s leader may find he has a compelling reason to change that view.

After the RSA deal closes next year, Intact will have a far stronger hand in the global game of consolidation. A team of RBC Capital Markets analysts, led by London-based James Pearse, said in a report that Mr. Brindamour will have an opportunity to trade RSA’s profitable British and European operations for Aviva’s Canadian business, which accounts for 8 per cent of the domestic market.

Aviva is a global player with a stock price that’s on a three-year slide. The company is attempting to improve its fortunes by focusing on a few key markets under newly appointed CEO Amanda Blanc, who was hired away from Zurich Insurance in July. In recent months, Aviva sold divisions in Italy, Indonesia and Singapore. To date, Ms. Blanc has said Canada, along with Britain and Ireland, remains a core market for Aviva.

“An asset swap between Aviva and Intact would allow both companies to benefit from further synergies without having to raise additional capital,” said Mr. Pearse. The analyst said both units – the British and Irish division of RSA and Aviva’s Canadian operations – are worth approximately $5-billion.

“We would caveat, however, that the acquisition of Aviva’s Canadian assets by Intact could draw concerns from Canada’s Competition Bureau due to concentration risk,” Mr. Pearse said.

Once the RSA acquisition closes, Mr. Brindamour will be in an enviable position. Intact can cut costs and boost profits in the domestic market by melding RSA’s Canadian unit with its own operations. In Britain and Ireland, analyst Phil Hardie at Scotia Capital said, Intact is acquiring a business at a “significant discount” to its book value and “management has demonstrated its ability to leverage its expertise and successfully expand into new regions.”

Intact’s CEO, a serial acquirer, could hit the pause button with the RSA transaction, knowing he’s positioned his company as a domestic leader with European growth potential. However, Mr. Brindamour also has the chance to build the dominant domestic platform by striking one more $5-billion deal with Aviva.

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