The Travelers Cos. said Monday it will spend $1.125 billion to acquire a Canadian insurer, its biggest acquisition in almost a decade and a major move into international markets.
Travelers is buying The Dominion of Canada General Insurance Co. of Toronto from E-L Financial Corp in what will be the biggest acquisition since the April 2004 merger of Travelers Property Casualty Corp. and The St. Paul Cos. in Minnesota.
"This transaction is consistent with our strategy to make thoughtful investments in attractive markets outside the United States," Travelers Chairman and CEO Jay Fishman said in a prepared statement. "The Dominion is a great franchise, and this is a very good opportunity for Travelers to significantly improve its market position and scale in a meaningful market."
The acquisition propels Travelers from the 20th largest property-casualty insurer to 10th in Canada, by one set of metrics.
"The deal will make Travelers a top 10 player in the country, and we believe that it's safe to assume that Dominion likely lacked the scale to adequately invest in the technology platforms that are necessary to compete in today's personal lines marketplace," Janney Montgomery Scott LLC analyst Larry Greenberg wrote in a note to investors.
"With Travelers quantitative approach to the business and technical capabilities, there would appear to be ample opportunity to improve financial results and leverage the Dominion platform to grow commercial lines in the areas where Travelers is most skilled (small to middle markets)," Greenberg wrote.
Commercial lines is insurance for businesses, as opposed to personal lines, like auto and home coverage.
The acquisition is expected to close in the fourth quarter of this year, provided it is approved by regulators and passes customary closing conditions.
Dominion was founded in 1887 and has regional offices in Vancouver, Edmonton, Calgary, London, Ottawa, Halifax and other cities.
The Dominion's chief executive and president, Brigid Murphy, will remain in her role as the head of the company. The CEO of Travelers Canada, George Petropoulos, will be vice chairman of The Dominion and will serve as executive vice president of the company's Bond and Financial Products.
"The combination will substantially enhance Travelers' product breadth in Canada by coupling The Dominion's commercial and personal portfolios with Travelers Canada's surety, management liability and commercial middle market products," Petropoulos said in a prepared statement. "We plan to leverage the expertise of both companies, and we will work closely with The Dominion team to assure a smooth transition for employees, customers and brokers."
E-L Financial is a multi-line insurer. In addition to The Dominion, it owns 80 percent of The Empire Life Insurance Company which underwrites life and health insurance policies. Empire also sells mutual funds, annuities and other products.
Barclays analyst Jay Gelb said in a note to investors that the transaction was expensive for Travelers at 1.3 times the stated book value in light of Dominion's "low return on earnings."
"We view Dominion as a turnaround story," Gelb wrote in the note. "Our sense is TRV [Travelers] would have been better off repurchasing more of its own stock."
E-L Financial CEO and President Duncan N.R. Jackman said in a prepared statement: "We are extremely proud of what The Dominion team has achieved over the years. We could not be happier that Travelers, a highly respected and well capitalized firm, will be the platform for future growth and success."
This is the second international acquisition in recent years for Travelers, which is primarily a U.S. property-casualty insurer. In June 2011, Travelers acquired a 43 percent stake in Brazilian surety insurer J. Malucelli Participacoes em Seguros e Resseguros SA for about $410 million. J. Malucelli is the market leader in surety insurance in Brazil, with a market share greater than 30 percent. In December, Travelers increased its stake in the company from 43.4 percent to 49.5 percent.