Strategist of the Year: How Rowan Saunders pulled off the second-largest IPO in Canadian history

Strategist of the Year: How Rowan Saunders pulled off the second-largest IPO in Canadian history
Strategist of the Year: How Rowan Saunders pulled off the second-largest IPO in Canadian history

Paul Bolasco/The Globe and Mail

Rowan Saunders reached the apex of his occupation status at the confetti-littered flooring of the Toronto Inventory Trade. It was once Nov. 23, 2021, and he was once about to ring the bell at the second-largest public inventory providing in Canadian historical past—the tip of a gruelling six-year procedure to transform his corporate, Definity Monetary Corp., from a customer-owned property-and-casualty insurer right into a publicly traded one.

The Definity CEO, flanked via corporate chair John Bowey and a gaggle of cheering colleagues, all clad in black surgical mask, watched the flashing blue clock rely down the overall seconds to the outlet bell. At 9:30 a.m., the ticker DFY started buying and selling at $22 a percentage. By way of day’s finish, the inventory had jumped via 24%, elevating $2.3 billion and clobbering the next-largest providing of the 12 months, Telus World, via $1 billion.

DFY stands for Definity, after all—however it would simply as simply stand for defy. From the instant the 150-year-old corporate introduced it was once taking a look to head public again in 2010—six years earlier than Saunders set foot inside of its Waterloo, Ont., headquarters—it confronted setback after setback, from new federal laws that threatened to scuttle the deal, to govt overhauls, to a gaggle of unsatisfied policyholders. Then there was once the truth that no Canadian P&C insurer had ever demutualized, which means there was once no current felony framework to apply.

But, below Saunders’s management, earnings has grown to $3.1 billion, up from $2.4 billion in 2018, and the proportion value has persevered to climb. As of early November, it was once buying and selling at just about $40, up 37% in 2022, even because the S&P/TSX Composite Index has dropped via greater than 8%. And Definity’s overall go back, together with dividends, is greater than two times that of alternative monetary shares at the index.

Bowey offers a lot of the credit score to Saunders. When Economical Mutual Insurance coverage Co., as Definity was once then recognized, approached him in 2016, Saunders was once the CEO of RSA Canada, a subsidiary of worldwide insurer RSA Insurance coverage Workforce (previously Royal and Solar Alliance), and were for 13 years. Economical was once part the dimensions of RSA, and its long term was once murky. “We had some daring ambitions on learn how to transfer ahead,” says Bowey, “however none of it was once assured or solid in stone.”

So he was once inspired when Saunders agreed to leap send from his sinecure and take a possibility on Economical, which needed to critically spice up its recreation if it sought after to make the demutualization a truth. “We had to carry out a lot in a different way than we ever had earlier than, and that was once going to take the proper chief,” says Bowey. “We unquestionably wanted any individual with revel in in our trade, however we additionally wanted any individual who was once up for a once-in-a-lifetime problem.”

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Saunders’s resumé is stacked with insurance coverage bona fides. At RSA, he wasn’t simply head of the Canadian department; he additionally sat at the corporate’s international govt committee. He was once chair of the Insurance coverage Bureau of Canada and stays a member of the board of administrators. Certainly, when he requested his dad, Brian—who spent 38 years as an insurance coverage dealer—whether or not he must take the Economical process, Brian informed his son it was once the process he’d spent the previous 30 years getting ready for.

If you’re taking Saunders’s early life under consideration, it was once a ways longer than that. As a child in Durban, at the east coast of South Africa, you’d frequently in finding younger Rowan sitting in the back of his dad’s table at estate and auto insurer Sedgewick Workforce, and he spent summers as an adolescent running there, too. In 1984, the circle of relatives (together with Rowan’s more youthful brother, Andrew, now The Globe and Mail’s leader earnings officer) left South Africa for Canada. After graduating from York College with a point in arts and historical past, Saunders deliberate to apply in his father’s footsteps and turn into a dealer. However Brian instructed he get some revel in at a big insurance coverage corporate first.

Saunders landed at RSA Canada and moved up the chain, in addition to around the nation, earlier than turning into CEO at age 39. “I used to be stunned, to be fair,” he says. “But it surely made me dive into the deep finish and determine issues out fast.”

When Economical got here knocking, Saunders was once able for a brand new problem. The corporate started insuring farmers’ barns in 1871 in Berlin, Ont. (now Kitchener). Over a better century and a part, it expanded to incorporate a number of manufacturers, amongst them Circle of relatives Insurance coverage, Missisquoi and Petline. However whilst Economical was once well-respected, it was once broadly noticed as reasonably sleepy.

Saunders had a plan: Fortify profitability, input new strains of industrial and get started making an investment thousands and thousands in new era to deliver the corporate into the twenty first century. “We have been going to must make really extensive adjustments, so I requested the board in the event that they have been up for a truly large cultural exchange, in addition to a large modernization,” says Saunders. “And the board was once extremely innovative and tremendous prepared to do this.”

Activity one was once to determine which spaces have been not winning. “This primary segment was once a truly vital piece of the tactic and most probably some of the tougher to head via,” says Saunders. “We needed to make a large number of tricky selections as we reshaped and repriced the portfolio.”

He employed McKinsey & Co. to do a deep dive. Their findings supported Saunders’s feeling that the corporate was once obese in non-public auto insurance policies, which accounted for greater than 50% of its e-book. Plus, it had a smaller quantity of industrial industry insurance coverage—a extremely winning line—at the stability sheet than its friends. Finally, the corporate was once closely concentrated in Ontario. If Economical sought after to head public, the portfolio would must be extra geographically various. Saunders started to push the tempo of enlargement out of doors Ontario, in particular in B.C. and Quebec.

He put in combination a crew to make bigger its business insurance coverage industry, via shifting towards mid-size organizations in development and production, and boosting forte strains, the contracts for which in most cases contain advanced protection over $100 million (the sort required via higher workplace towers and production crops). “We wanted an providing that was once a one-stop store for agents,” says Saunders. “And that’s precisely what we did via including those features.”

It additionally supposed exiting strains that have been chronically unprofitable, together with long-haul trucking and dairy farms. “It’s important to play the place you may have a possibility of successful,” he says. “You’ll’t be all issues to all other folks.” As of late, non-public auto accounts for most effective 43% of the $3.4-billion portfolio, and business strains make up about 30%.

Concurrently, he needed to modernize the best way Economical did industry. No longer lengthy earlier than Saunders got here on board, it introduced Sonnet, a direct-to-consumer industry that bought auto insurance coverage. It was once an enormous shift, and a few insurance coverage agents noticed it as direct pageant. “Rowan’s excessive wisdom of the insurance coverage trade helped sharpen the focal point on how a direct-to-consumer channel must perform,” says Bowey, “and let the agents know we didn’t abandon them.”

In 2018, Saunders expanded Sonnet to incorporate house, landlord and tenant insurance coverage, and started to put money into its era. What set Sonnet aside was once its reliance on knowledge analytics—in particular in bettering underwriting features (the method of deciding if the chance of insuring any individual is value the fee). For instance, purchasers not have to finish long questionnaires, which might exceed 30 detailed questions. Consumers not have to worry over the precise distance they reside from a fireplace station or whether or not the home has veneer siding or brick. As an alternative, the underlying era scrapes public data like tax and housing stories, which means programs will also be processed sooner and with extra aggressive charges.

Inside of 3 years, the net industry was once promoting about $200 million in premiums each and every 12 months. As of late, it has surpassed $300 million, and it’s up 22% in 2022 by myself. Saunders additionally leveraged Sonnet’s tech to create a web-based instrument referred to as Vyne to assist its community of agents supply extra correct quotes and quicker approvals.

Whilst overhauling the stability sheet was once a big precedence, Saunders additionally needed to juggle the duties round demutualization. Canada’s P&C trade has been consolidating during the last decade, as foreign-owned gamers have bought their operations to the bigger home corporations. Economical needed to carry capital from fairness traders to take care of.

However since 2010, rigidity were brewing amongst policyholders over how Economical’s capital must be divided. When the IPO procedure started, there have been no federal laws round P&C demutualization. In 2014, the federal finance division dominated all policyholders who contributed to construction an insurer’s capital base must obtain a percentage of the corporate’s surplus cash. The outcome was once a smaller workforce of 878 mutual policyholders—necessarily co-owners of the corporate—who as soon as idea they have been entitled to each and every nickel of its $1.9 billion in price would now must percentage the IPO pot with kind of 630,000 non-mutual policyholders—principally, somebody who had bought an Economical insurance coverage contract.

The 2 teams arrange committees to check proposals on learn how to divvy up the advantages of the demutualization. Then got here negotiations, together with 3 separate votes. If the teams couldn’t come to an settlement at the allocation of finances, all Saunders’s onerous paintings would grind to a halt. “It was once extraordinarily high-stakes,” he says. “If any a kind of votes failed, demutualization could be useless, and we must get started in every single place once more.”

Bowey says Saunders was once a reassuring voice in disturbing conferences with policyholders. Finally, they voted in favour of the IPO plan. Taking a look again, Saunders says he was once by no means anxious it could result in failure. “The larger concern was once, may just we turn into our industry and input existence as a public corporate with a tight efficiency and a excellent monitor document?”

To get there, Saunders wanted the proper crew—one who understood the bits and bobs of working a publicly traded corporate. Previously 5 years, there’s been greater than 75% turnover some of the govt management crew. On the subsequent point down—which contains Definity’s best 100 executives—greater than part are novices.

It was once a painful duration throughout which he needed to let move a lot of workers. “I didn’t have the essential time required to groom and trainer an current crew,” says Saunders. “We have been at the clock, so I had to act briefly and hand-pick a crew that had a powerful monitor document and popularity.”

Leader other folks officer Brigid Pelino is likely one of the novices. With earlier revel in working HR at Top Liner, WestJet and Tim Hortons, it was once Saunders’s power that drew her in. “Rowan was once so assured within the Definity tale and the crew he was once construction that individuals simply sought after to be a part of it,” she says. “He additionally truly takes the time to interact no longer simply along with his next-level crew, however with the board and the workers, to assemble essential knowledge that is helping him information the send.”

Saunders is aware of a factor or two about striking in combination a powerful crew—he was once captain of the rugby crew at York. (He not performs, however he nonetheless passionately cheers for his house crew, the South African Springboks.) “Identical to aggressive sports activities, taking up a brand new problem is set striking other folks in the proper spot,” he says. “I’ve constructed nice groups up to now, and I used to be assured I may just do it once more.”

His management crew combines ability from public corporations together with Rogers Communications, TD Financial institution, Canadian Tire and RSA, which was once not too long ago bought via the rustic’s greatest P&C insurer, Intact Monetary. “Now we have such various gamers across the room with other reports to deliver in combination,” says Pelino, noting the corporate additionally added 1,000 workers between 2018 and 2020. “I’ve noticed it executed in different organizations the place it may well truly harm the tradition. Right here, Rowan has been ready to make our tradition more potent.”

Institutional traders appear to agree. At the day of the IPO, an extra $759 million in stocks have been purchased via a non-public placement—Healthcare of Ontario Pension Plan took two-thirds, and reinsurer Swiss Re Investments took the remainder. “The ones traders gave a large number of credibility for long term traders to return on board,” says Saunders.

His efforts have paid off. Since 2018, Definity—the identify was once unveiled in August 2021, when the IPO was once filed—has noticed a marked development in its mixed ratio, a measure of profitability utilized by insurers to gauge how properly they’re appearing in day by day operations. It calculates the quantity an insurer will pay out in claims in comparison to what it collects in premiums; the decrease the ranking, the easier. In 2018, the mixed ratio was once 111.8%. By way of 2020, it had dropped to 94.6%. On the finish of remaining 12 months, it was once all the way down to 93.1%. Financial institution of Montreal managing director Tom MacKinnon says this places Definity in keeping with—if no longer higher than—the trade. “It’s a testomony to Rowan’s skill to draw and encourage a brand new crew,” he says.

Definity has additionally noticed a limiteless development in gross written premiums—the quantity it receives from policyholders and a key a part of overall earnings. In 2018, they have been sitting round $2.5 billion. By way of the tip of 2021, they’d larger to $3.3 billion.

Now, Saunders has set his attractions on turning into some of the best 5 P&C insurers in Canada, up from No. 7 lately. “Many people who run companies have ambitions however don’t all the time have the sources to meet the ones ambitions,” the CEO says. “However now we have $1 billion-plus in extra capital to deploy—and going public has made us a a lot more credible purchaser and a more potent player in M&A.”

He’s already taken one step down that street: In October, Definity paid $217 million to spice up its fairness possession in McDougall Insurance coverage from 25% to 75%. Together with Definity’s different dealer investments, the Ontario-based distributor is predicted to generate in way over $40 million a 12 months (as opposed to $8 million on the finish of 2021).

“The larger agents are getting larger with consolidation—simply because the insurers are consolidating,” Saunders says. “And we’re positioning ourselves to have a foot in each and every attitude of the trade.”

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