iA Financial Group expands U.S. presence with $135M acquisition

iA Financial Group says it has signed an agreement to acquire the shares of privately-owned, U.S.-based Dealers Assurance Company and Southwest Reinsure Inc. (collectively known as DAC) for US$135 million.

Founded in 1985 and based primarily in the Southwest U.S., DAC manufactures and distributes vehicle service contracts, or extended warranties, through a cross-country network of new and used-car dealers in the U.S.

This acquisition more than doubles the scale of iA Financial Group’s vehicle warranty business.

In 2016, iA Financial Group reported direct written premiums of $197 million from vehicle warranties in Canada.

With the addition of DAC, combined premiums on a similar basis would represent approximately $500 million.

“Having built a solid presence in personal insurance in the U.S. and after close consideration of strategic opportunities to enlarge our U.S. footprint, we have chosen to make our next move in the automobile warranty market,” Yvon Charest, president and CEO of iA Financial Group, said in a release.

“This is a business where we have built tremendous know-how and experience over the last 20 years in Canada, which we now want to leverage in the larger U.S. market.”

Mike Stickney, president of iA American, said the American extended warranty market is about $15 billion or ten times that of Canada.

“It is very fragmented with significant opportunity for growth and consolidation. With our solid track record in the extended warranty business in Canada together with the established presence of DAC in the US, we look forward to this new chapter in our US expansion with great anticipation,” Stickney said.

The acquisition will be financed from cash on hand and reduce the iA’s solvency ratio by approximately eight percentage points.

It is expected to be modestly accretive to earnings in 2018 and to contribute $0.05 per share in 2019. The transaction is scheduled to close in the last quarter of 2017, subject to the usual regulatory approvals in Canada and the U.S.