Definity Financial Corp. to Acquire Travelers Canada Operations
Definity Financial Corp. has announced its agreement to purchase the Canadian operations of Travelers, a prominent U.S.-based insurance company, for an impressive $3.3 billion. This strategic acquisition is poised to elevate Definity’s ranking from sixth to fourth among property and casualty insurers within Canada.
Details of the Acquisition
In a statement made on Tuesday, Definity revealed that it will acquire most of Travelers’ Canadian operations, which will contribute approximately $1.6 billion in annual gross written premiums—an essential metric representing the revenue an insurer generates from its policyholders. Following this acquisition, Definity’s total annual premiums will reach $6 billion, marking a significant advancement in its foothold in the Canadian insurance market.
Statements from Leadership
Rowan Saunders, CEO of Definity, expressed that this acquisition is a significant milestone in their mission to fortify a national insurance leader. He highlighted the company’s organic growth, which has outpaced the industry average over the past few years. He noted that the primary motive behind Definity’s initial public offering was to capitalize on anticipated consolidation within the property and casualty insurance sector.
Financial Structure of the Deal
To finance the acquisition, Definity plans to utilize a combination of resources: $1.5 billion will be drawn from Travelers’ balance sheet, coupled with a portion of Definity’s own cash reserves. Additionally, the company will secure $1.6 billion in new debt, raise $281 million from public investors through stock sales, and receive a $70 million investment from the Healthcare of Ontario Pension Plan Trust Fund (HOOPP), a key stakeholder in Definity.
Definity will offer shares to the public and HOOPP at a price of $66.65 per share. The transaction is pending regulatory clearance and approval from the federal Competition Bureau, with expectations for completion by the first quarter of 2026.
Travelers’ Canadian Journey
Travelers first ventured into the Canadian market in 2013 following its acquisition of The Dominion of Canada General Insurance Company, a deal valued at $1.1 billion. Since then, Travelers Canada has expanded its workforce to over 1,400 employees across key cities such as Vancouver, Calgary, Toronto, Ottawa, and Montreal, providing a wide array of personal, commercial, and specialty insurance products.
Future Direction for Definity
Travelers’ chairman and CEO, Alan Schnitzer, articulated that the evolving landscape of the Canadian market makes Definity a fitting long-term steward for their business. He voiced confidence that the transition would advantage Travelers’ Canadian customers and brokers by integrating them into one of Canada’s leading and fully-established property and casualty insurance companies.
Employee Retention and Brand Integration
As part of the acquisition strategy, Definity has committed to retaining all Travelers’ Canadian employees. The integration will occur under a unified brand, although Travelers will maintain its Canadian surety business, which provides coverage options essential for businesses to fulfill their commitments and obligations.
Expansion as a Key Objective
This acquisition aligns perfectly with Mr. Saunders’ vision following Definity’s public listing in November 2021. At that time, Definity ranked as Canada’s eighth-largest insurer, but with plans in place to increase market share. The company has since allocated over $1 billion towards various transactions to enhance its brokering distribution network and technological capabilities.
Conversations that Shaped the Deal
Mr. Saunders mentioned that the direction for this acquisition solidified just over a year ago during discussions with Mr. Schnitzer in New York. They recognized the significant changes ahead in the Canadian insurance market and concluded that achieving scale would be critical for success. This mutual understanding fostered an environment where Definity could negotiate a fair valuation without entering a competitive bidding scenario.
Strategic Growth Vision
Mr. Saunders characterized this deal as transformative, integral to Definity’s growth strategy. He emphasized that it underscores their commitment to sustainable growth and bolstering competitiveness, while simultaneously broadening their reach and strengthening relationships with brokers and customers nationwide.
Current Operations of Definity
Definity operates through various brands in the personal and commercial insurance sphere, including Family Insurance Solutions Inc., Petline Insurance Co., and Sonnet Insurance Co., the latter being a digital platform focused on direct consumer sales.
Projected Impact of the Acquisition
If this acquisition receives approval, it will inject about $600 million into Definity’s commercial insurance sector and introduce new specialty lines, such as marine insurance, cyber risk coverage, and professional liability policies. Furthermore, Travelers is expected to contribute around $1 billion in annual premiums to Definity’s personal insurance sector, marking a significant 30 percent increase from current premium levels.
Market Trends and Future Mergers
Mr. Saunders recognized that with over 100 insurance companies active in Canada and ongoing trends towards consolidation, the acquisition signals potential for future mergers and acquisitions within the industry. He noted that the decision by a significant North American player like Travelers to divest its Canadian operations indicates that other smaller international insurers might also be contemplating similar moves.
Conclusion
Overall, this strategic acquisition not only positions Definity Financial Corp. for greater market influence but also illustrates their strong capabilities as a consolidator in the Canadian insurance landscape. The acquisition reflects a broader trend in the industry, paving the way for potential future integrations that can reshape the competitive landscape of Canadian insurance.
Advisory roles were filled by RBC Capital Markets, which provided financial advice to Definity, while Jefferies LLC acted as financial advisor to Travelers, with legal guidance from Skadden, Arps, Slate, Meagher & Flom LLP and Stikeman Elliott LLP.
