Intact Financial, RSA to acquire Direct Line’s commercial lines for £520m

Intact Financial Corporation (TSX: IFC) and its subsidiary RSA have struck a deal to acquire Direct Line Insurance Group’s brokered Commercial Lines operations for an initial cash consideration of £520 million (C$884 million). The agreement also includes a potential contingent payment of up to a further £30 million (C$51 million), based on the future financial performance of the acquired lines. The purchase includes the transfer of renewal rights, brands, employees, and systems to RSA.

Board Approval and Shareholder Consent

The transaction has received unanimous approval from the Boards of Directors of both Intact Financial and Direct Line and is now pending Direct Line Shareholder Approval. Direct Line’s Commercial Lines generated written premiums of £530 million in 2022, with an average combined ratio of approximately 96% across 2021 and 2022.

Executives Speak on the Acquisition

“This acquisition significantly strengthens our UK&I business, and is strongly aligned with our strategic and financial objectives,” said Charles Brindamour, Chief Executive Officer of Intact Financial Corporation. Ken Norgrove, Chief Executive Officer of RSA, added: “We look forward to welcoming a team of experienced, highly talented and skilled colleagues from strong brands, including NIG and FarmWeb, to further enhance RSA’s strong Commercial Lines business.”

Strategic Implications and Future Plans

The acquisition aims to enhance the profitability and growth profile of Intact’s UK and International (UK&I) businesses. It will result in RSA becoming the third-largest player in the attractive UK Commercial Lines market with an estimated 7% market share. The deal is expected to be accretive to Net Operating Income Per Share (NOIPS) by 2024, with an Expected Internal Rate of Return (IRR) in excess of 15%. Intact is also considering strategic options for RSA’s UK Personal Lines business, including a potential sale, aligning with RSA’s previous announcement of exiting the UK Personal Lines motor market in March 2023.