As the trend of insurers acquiring MGAs increases, iA Financial Group wants to intensify the expansion of its independent distribution network to compete with “the big three” insurers.
The Insurance and Investment Journal met with the two senior executives of iA Financial Group during the company’s annual meeting held on May 10. Yvon Charest and Denis Ricard, president and chief executive officer and chief operating officer, respectively, say the distribution network acquisitions made in recent years have enabled the insurer to increase its profits.
They say iA is resolved to take its place among the giants. As an example, Charest provides a statistic related to his company’s average profit, compared to the insurers who outperform it in terms of market share: Sun Life Financial, Great-West Lifeco and Manulife.
Charest says iA Financial Group’s average net income represents 53 per cent of the average net income of its three major competitors. This proportion was 25 per cent in 2012.
Charest says that iA’s competitors rely on their business activities in Asia to boost their profits. This is not the case for iA Financial Group, which intends to expand in Canada, where the insurer earns 95 per cent of its profits.
iA Financial Group also aims to increase the company’s earnings per share (EPS) by at least 10 per cent annually by 2019. This growth should come from its existing business, say the two executives, which includes its recent acquisitions such as HollisWealth in 2017 and PPI in February 2018.
Distribution is key
Ricard says he has always thought that distribution is key to remaining competitive. The consolidation of the MGA channel has strengthened this view, he told The Insurance and Investment Journal.
When Great-West Lifeco acquired Financial Horizons Group, it was clear that iA Financial Group should be in the game, says Ricard. Acquiring PPI has been an important milestone in that sense, he says.
By acquiring PPI and its network of advisors specialized in the high net worth market, Ricard says he believes that iA has also at the same time acquired a strong and competent management team. He says this team will be able to provide support to advisors working with the small MGAs that the company has purchased in the past.
Acquiring a consolidator with widespread distribution also allows iA to protect its market share. “Which of our competitors with an integrated network would dare turn off Industrial Alliance’s tap while we are distributing their products?” comments Ricard.
He also says PPI will become his company’s platform to consolidate the market. After just over a month of operation within iA, PPI acquired, on April 10, ABEX Brokerage Services and its subsidiary ABEX National Brokerage.
Charest explains that the transaction was a natural fit for PPI, given its proximity to ABEX in the Calgary area. “Smaller than PPI, ABEX has two headquarters in Calgary. It took PPI five weeks to decide to buy it,” he says. ABEX’s name will disappear in favor of PPI, which has completed the integration of its operations, he says.
Charest and Ricard say that for the time being, PPI operates independently of Hollis Insurance, a distribution entity resulting from the acquisition of HollisWealth last year. National Financial Insurance Agency Inc. (NFIA) was merged into Hollis Insurance. “PPI and Hollis Insurance will not remain separate,” Ricard revealed.
He hints that the two distribution networks could eventually merge, but that no decision has been made on such a merger. “Currently, we have two MGAs: PPI and Hollis Insurance,” says Ricard.
Respect for independence
iA has also acquired many small MGAs in recent years. For these smaller players and PPI, the insurer wants to respect the independence of advisors who work with its MGAs.
“In absolute terms, a manufacturer is a little more profitable,” says Ricard. But the acquisition of a distributor can generate the same profitability in the long run. We get a return on equity compared to the price we pay. Besides the fact that we can sell our own products, distribution in itself is an interesting business. We have seen it on the wealth management side, a network that we have been building for 15 years. The same logic applies on the insurance side.”
This respect for independence has paid off: the insurer is reaping the fruits of the relationships it had already built with its distributors before acquiring them. “When we ask our distributors for a place to showcase our products to their representatives, they always say yes. We have privileged access,” says Ricard, adding, however, that the company will never impose its products.
3,000 advisors at PPI
The acquisition of PPI has added a major network for the insurer. “More than 3,000 advisors do business with PPI,” said Charest.
He adds, however, that he cannot reveal the exact proportion of their business that these advisers place at PPI. “It’s the hardest thing to determine,” says Charest. “Are there 1,800 going through a smaller MGA for other things? Technically, nobody knows. The compliance model, therefore, has its limits in Canada. Who will be responsible for overseeing the advisor, PPI or another MGA where the advisor places business? No MGA has a complete view of an advisor’s business.”
As far as Hollis Insurance is concerned, Ricard says several advisors are already focusing on iA products. “In the past, we bought small MGAs who did business with us – and whose owner had no succession –to keep the relationship with the advisor. Many of these advisors sometimes placed up to 75 per cent to 80 per cent of their business with us. We have purchased many of these MGAs over time, which has given us a profitable critical mass.”
What marketshare does iA want in the independent channel? iA is the insurer with the most insurance policy units in Canada, with a market share of almost 19 per cent.
“Virtually one person in five has a policy with us,” says Ricard. In premiums, this varies from one quarter to the next. We have about 12 per cent of the market. In general, we are in the smaller policy market, in the family market. “