RSA Insurance Group Acquires GCAN in Cash Deal

RSA Insurance Group plc said it will pay C$420 million (US$411.7 million) in cash to acquire GCAN Insurance Co. from the Ontario Teachers' Pension Plan.

The deal for the Canadian commercial property/casualty insurer was announced Oct. 4. RSA said the acquisition will make it the fourth-largest general insurer in Canada based on combined 2009 gross written premium of C$2.2 billion.

GCAN's 2009 gross written premium of C$252 million reflected an 11% increase compared with a year earlier, according to BestLink, which provides online access to A.M. Best Co.'s Global Insurance & Banking Database. The insurer distributes through independent brokers across Canada, has 119 employees and writes property, crop hail, boiler and machinery, liability, directors & officers, errors & omissions, commercial automobile, marine, and aviation, according to BestLink.

RSA said GCAN had estimated surplus capital of C$110 million. As of June 30, GCAN had a Canadian Minimum Capital Test Ratio of 384%, compared with a market average of about 237%, according to RSA.

RSA Canada is the lead insurer in the Toronto-based RSA Group, which also includes affiliates Western Assurance Co. and Quebec Assurance Co., according to BestLink. RSA Insurance Group said the acquisition will generate a return on investment in the mid-teens.

"Over the past five years, RSA Canada has grown its premiums by around 60% and doubled its underwriting result," RSA Insurance Group Chief Executive Officer Andy Haste stated in a statement.

That could be a challenge if Canada's overall soft market conditions continue. Last year marked the second straight year that the Canadian property/casualty industry posted an underwriting loss, according to an A.M. Best Special Report that was released Sept. 6, 2010. The report stated that high loss ratios on personal property and further deterioration in Ontario auto resulted in a 2009 net underwriting loss of C$207.9 million. The combined ratio improved slightly to 100.9, down from 101.2. The GCAN acquisition comes less than two months after RSA Insurance Group's cash bid of 5 billion pounds (US$7.9 billion) for the nonlife assets of Aviva plc was rejected (BestWire, Aug. 16, 2010). Aviva, which described itself as the number two player in Canada, said at the time that it was "convinced that the highest value to shareholders will be delivered by retaining these businesses within the group."

Neil Petroff, executive vice president and chief investment officer of Teachers' Private Capital, the pension fund's investment arm, credited GCAN's management with building the company and positioning for a move to the next level "with the support of a strong international insurance company."

"Our financial services group has had an impressive level of deal activity this year and we will continue to pursue opportunities in the sector," Petroff said in a statement.

Earlier this year Teachers' Private Capital acquired Toronto-based AIG United Guaranty Mortgage Insurance Company Canada, the second-largest private mortgage insurance provider in Canada with assets of C$274 million and total equity of C$127 million as of Sept. 30, 2009 (BestWire, Jan. 6, 2010). Terms of the transaction were not disclosed.

GCAN Insurance currently has a Best's Financial Strength Rating of A (Excellent).

Members of the RSA Group have a Best's Financial Strength Rating of A (Excellent).

(By Al Slavin, senior associate editor, BestWeek)