State Farm has agreed to sell its Canadian P&C, life, mutual fund, loan and living benefits companies to Desjardins Group. The deal, subject to conditions, is expected to close in a year. As part of the agreement, State Farm will make a $450 million Canadian investment in non-voting preferred shares into the P&C business insurance business after closing, which will include the newly acquired State Farm Canada property and casualty operations, so Desjardins can operate them under a licensing agreement. Desjardins Group will allocate capital of approximately $700 million Canadian, and Crédit Mutuel, a major European cooperative financial group and long-term partner of Desjardins Group, will invest $200 million Canadian.
"This combination creates a leading platform with new opportunities for growth and success for our employees, agents and customers," said Edward Rust, State Farm chairman and CEO, in a statement. "State Farm's financial investment in the newly combined P&C business and license to use the State Farm brand reflect our confidence in the strength of the combined business going forward."
"This acquisition will allow Desjardins to develop a broader, multi-channel distribution network across the country, while continuing to meet the needs of State Farm's Canadian client base," added Monique Leroux, chair of the board, president and CEO of Desjardins Group, in the statement. "At the same time, it will enhance our position in Canada by expanding our customer reach and achieving economies of scale. This transaction is clearly aligned with Desjardins' strategic objectives to expand insurance distribution across the country and develop business opportunities with mutual and cooperative organizations."
Many insurers expect an increase in M&A activity this year, according to recent Towers Watson research, and it hasn't been long since the last M&A activity in the Canadian insurance market.
Last year, Travelers bought The Dominion of Canada and integrated it with its Canadian operations. This raised Travelers' market share into the top 10 of Canadian insurers from less than one percent. The combined Desjardins/State Farm company — which nearly doubles Desjardins' market share from $2 billion to $3.9 billion — will be No. 2 in the market, behind only Intact.