Westaim Corp (Goodwood Fund investment and related entity) sells JEVCO.

Intact takes a risk with $530-million Jevco takeover

Intact Financial Corp. , Canada’s largest property and casualty insurer, is delving into riskier business with its $530-million takeover of Jevco Insurance Company.

Jevco specializes in corners of the market that most bigger players shy away from. It insures drivers who don’t qualify for standard auto insurance because of a bad driving or payments record, as well as taxis, driver-training cars, ATVs, snowmobiles and tow trucks. And it is Canada’s largest writer of motorcycle insurance.

The deal comes as executives at top property and casualty insurers say they expect to see a wave of consolidation transform the industry, with larger players scooping up smaller rivals in the hunt for growth.

There are more than 200 companies in the industry. The three biggest, Intact, Aviva and RSA Insurance Group PLC, collectively hold 25 per cent of the market. And they want more.

RSA, for instance, paid $420-million to buy GCAN Insurance Company from the Ontario Teachers’ Pension Plan last year.

The desire to find new avenues for growth also prompted Intact’s deal for Jevco, which is expected to close this fall.

Intact CEO Charles Brindamour has said Intact will ultimately expand beyond Canada, but in the meantime, it’s an acquirer. The takeover of Jevco comes one year after Intact paid $2.6-billion for AXA Canada, which had been the sixth-largest home, auto and business insurer in the country.

Jevco is currently owned by Westaim , a publicly-traded holding company that bought it from Kingsway Financial Services Inc. in 2010 for $261.4-million. At the time Kingsway, which also specializes in insuring risky drivers, was struggling with its debt load and needed cash – in large part because its niche U.S. businesses, such as insuring truckers, had been hard hit by the recession.

Westaim obtained some of the financing for the purchase from Alberta Investment Management Corp. (AIMCo) and fund manager Goodwood, and both stand to profit from the deal to flip it to Intact.

Westaim’s shareholders will be asked to approve the transaction later this year, but AIMCo, Goodwood and a number of executives and directors who collectively hold 53.7 per cent of the voting shares have said they are in favour.

On a conference call with analysts, Mr. Brindamour said this deal is important because Jevco will expand the type of products that Intact offers, and he believes better claims-management expertise will improve the business’s performance.

The lines of business Jevco is in tend to generate higher claims and losses than standard insurance. To account for that, the company charges customers higher premiums. But it’s still a risky venture.

For instance, last year Jevco experienced losses in its motorcycle insurance business because the weather was milder than usual, which prompted bikers to stay on the road for more months of the year and led to higher claims.

Credit rating agency DBRS said Jevco is expected to represent about 6 to 7 per cent of Intact’s profits, and will add about $1-billion to its $12-billion of invested assets.

Intact, which was formerly ING Canada until it was spun off by its Dutch parent company and listed on the Toronto Stock Exchange three years ago, will receive an $18.5-million break fee from Westaim if it receives and goes with a higher offer.

Intact topped analysts’ expectations on Tuesday when it released first-quarter profits of $177-million, up from $157-million a year earlier.