IA’s reach ex­pands

Investment Executive - - FRONT PAGE - BY ME­GAN HAR­MAN

que­bec city-based in­dus­trial Al­liance In­sur­ance and Fi­nan­cial Ser­vices Inc.’ s (IA) re­cent ac­qui­si­tions of some manag­ing gen­eral agen­cies (MGAs) is not only an ex­pan­sion of the in­surer’s dis­tri­bu­tion foot­print, but is the lat­est ex­am­ple of in­sur­ance prod­uct man­u­fac­tur­ers tak­ing own­er­ship of in­de­pen­dent dis­tri­bu­tion. This trend could re­shape the fi­nan­cial ad­vi­sory land­scape for years to come.

“It’s con­ceiv­able that we could al­most be a type of ca­reer agent again, like we were [years ago], within the next decade or so,” says Jerry Littman, cer­ti­fied fi­nan­cial plan­ner and co-owner of Fore­sight Fi­nan­cial Ser­vices Inc. in Cal­gary, which op­er­ates un­der the um­brella of PPI So­lu­tions Inc., a Cal­gary-based MGA.

In fact, IA an­nounced in late Fe­bru­ary that it had ac­quired PPI So­lu­tions’ par­ent firm, Toron­to­based PPI Man­age­ment Inc., which op­er­ates two in­de­pen­dent life i nsurance dis­tri­bu­tion net­works com­pris­ing more than 3,000 ad­vi­sors across Canada. PPI’s two MGAs — PPI So­lu­tions and Toronto-based PPI Ad­vi­sory — will con­tinue to op­er­ate as in­de­pen­dent bro­ker­ages, ac­cord­ing to IA, with no changes to ad­vi­sors’ dayto-day op­er­a­tions.

IA sub­se­quently ac­quired a Cal­gary-based MGA, ABEX Bro­ker­age Ser vices Inc., as well as that MGA’s Sur­rey, B.C.based sub­sidiary, ABEX Na­tional Bro­ker­age Inc., in April. Those com­pa­nies, IA said, will be in­te­grated into PPI’s MGAs.

“Our strategy is to grow on the dis­tri­bu­tion side,” says De­nis Ri­card, chief op­er­at­ing of­fi­cer at IA. “De­vel­op­ing dis­tri­bu­tion has been a real strength of [IA] that dis­tin­guished [the firm] from oth­ers in the [life in­sur­ance] in­dus­try.”

IA op­er­ates a ca­reer sales force in Que­bec, and the firm is not new to the in­de­pen­dent in­sur­ance dis­tri­bu­tion busi­ness, ei­ther. A decade ago, IA ac­quired an­other MGA, Na­tional Fi­nan­cial In­sur­ance Agency Inc. (NFIA), then ex­panded that unit over time by ac­quir­ing other MGAs.

How­ever, Ri­card says, un­til now, IA’s MGA op­er­a­tions pri­mar­ily have been a de­fen­sive strategy to pro­tect some of IA’s busi­ness with small MGAs that didn’t have a suc­ces­sion plan.

IA re-eval­u­ated its strategy last year af­ter Winnipeg-based GreatWest Life As­sur­ance Co. (GWL) ac­quired Kitch­ener, Ont.-based Fi­nan­cial Hori­zons Group Inc. — one of Canada’s largest MGAs. That deal, Ri­card says, was a “game changer” for the in­dus­try.

“We had to ask our­selves at that point: ‘Do we want to be a bit more ag­gres­sive in terms of buy­ing dis­tri­bu­tion?’” Ri­card says. “And the de­ci­sion was made at the time to do it.”

PPI was an ideal fit for IA, Ri­card adds, as the firms worked to­gether in the past, in­clud­ing col­lab­o­rat­ing on the de­sign of EquiBuild, a per­ma­nent life in­sur­ance prod­uct that com­bines fea­tures of whole life and univer­sal life, in 2015.

PPI’s op­er­a­tions even­tu­ally will be merged with NFIA, Ri­card says, and PPI’s man­age­ment team will be re­spon­si­ble for over­see­ing IA’s en­tire MGA op­er­a­tion.

“The depth of knowl­edge in the man­age­ment at PPI is among the top in Canada,” he says.

Cana­dian in­sur­ers’ foray into the MGA space comes amid rapid con­sol­i­da­tion among MGAs, which is driven by fac­tors such as ris­ing com­pli­ance costs and ag­ing own­ers who are pre­par­ing to re­tire. Against that back­drop, com­pa­nies such as IA and GWL prob­a­bly see op­por­tu­ni­ties to be con­sol­ida­tors, says Paul Holden, a fi­nan­cials stock an­a­lyst with CIBC World Mar­kets Inc. in Toronto.

“The amount of busi­ness that flows to the larger MGAs should in­crease,” Holden says, “so, get­ting in­volved as an owner of one of those larger MGAs makes sense.”

Al­though IA states its grow­ing net­work of in­de­pen­dent in­sur­ance ad­vi­sors will be free to sell any in­surer’s prod­ucts, Holden says, IA could have some in­flu­ence on those sales: “I look at a va­ri­ety of in­dus­tries, and where I see the ver­ti­cal in­te­gra­tion of prod­uct man­u­fac­tur­ing and dis­tri­bu­tion, keep­ing the dis­tri­bu­tion 100% in­de­pen­dent is rare. I think, nat­u­rally, there is a ten­dency to have some in­flu­ence there.”

Richard Gil­bert, pres­i­dent of Mis­sis­sauga, Ont.-based Mega­corp In­sur­ance Agen­cies Inc., says he’s con­cerned about the trend to­ward in­sur­ance car­ri­ers own­ing MGAs be­cause “it’s a ma­jor con­flict of in­ter­est.”

Littman, how­ever, says he’s not wor­ried about his in­de­pen­dence, as he has been as­sured that he can con­tinue sell­ing other com­pa­nies’ prod­ucts. He be­lieves the change in own­er­ship at PPI So­lu­tions is sim­ply a busi­ness de­ci­sion driven by the grow­ing cost of do­ing busi­ness.

“I’m sure, at the end of it all, [this was mo­ti­vated by] the heavy cost of com­pli­ance,” Littman says. “It’s a chal­lenge ev­ery sin­gle day.”

Littman an­tic­i­pates that IA’s own­er­ship of PPI will pave the way for PPI to get more in­volved in the de­sign of life in­sur­ance prod­ucts: “[PPI has] al­ways thought out­side the box. What the [firm] comes up with next will be fun to see.”

Even as IA ex­pands its in­sur­ance dis­tri­bu­tion, Ri­card ac­knowl­edges that Canada’s life in­sur­ance in­dus­try is ma­ture and fac­ing a va­ri­ety of chal­lenges, in­clud­ing reg­u­la­tory and ac­count­ing changes: “There are some clouds sur­round­ing in­di­vid­ual life in­sur­ance in Canada.”

Ac­cord­ingly, IA will con­tinue ex­pand­ing its wealth-man­age­ment busi­ness, Ri­card adds: “It’s a move­ment to­ward a busi­ness that at the end of the day, has more po­ten­tial for growth.”

IA’s ac­qui­si­tion of Toron­to­based Hol­lisWealth Inc. from Toronto-based Bank of Nova Sco­tia in Au­gust 2017, was “trans­for­ma­tive” in grow­ing IA’s as­sets un­der ad­min­is­tra­tion and es­tab­lish­ing a ma­jor wealth-man­age­ment net­work, Ri­card says. (See the Deal­ers’ Re­port Card on pages 9 through 18.)

As IA ex­pands, the firm is re­struc­tur­ing its op­er­a­tions. The new struc­ture, which share­hold­ers ap­proved at IA’s an­nual gen­eral meet­ing in May, will in­clude a newly es­tab­lished hold­ing com­pany named IA Fi­nan­cial Corp. Inc., which will wholly own IA.

Hav­ing a hold­ing com­pany will pro­vide IA with more flex­i­bil­ity to ex­e­cute its growth strategy, Ri­card says. As Canada’s three big­gest life in­sur­ers op­er­ate un­der sim­i­lar struc­tures, he says, the move will level the play­ing field.

“As we be­come a large or­ga­ni­za­tion, we thought hav­ing more flex­i­bil­ity in terms of where we want to raise cap­i­tal would be bet­ter,” Ri­card says, “whether it’s the op­er­at­ing com­pany or the hold­ing com­pany.”

“We had to ask our­selves: ‘Do we want to be a bit more ag­gres­sive in terms of buy­ing dis­tri­bu­tion?’”

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