Consolidation now targeting small firms and blocks of business

While large MGAs integrated with an insurance company seem to be taking a break, other players are choosing to buy small firms or blocks of business and reinforce their independence. 

Ontario-based managing general agent Qualified Financial Services (QFS) has been quickly racking up acquisitions over the past 14 months. One of the last large MGAs to be owned by its founder or successor, QFS recently reshuffled its management. As part of a succession plan, Kevin Cott handed over the role of president to Fiona Cuddy in 2018 and became chairman of QFS in 2019.

In 2021, the Toronto-based general agent closed the acquisition of Ottawa-based NL Financial's MGA agreement with iA Financial Group. Also in 2021, QFS acquired another block of business via a general agent contract with iA, involving Kaulback Financial Group, based in Dartmouth, Nova Scotia.

Qualified Financial Services purchased several other iA portfolios from independent general agents in 2020: CJ Simon Insurance Agency of Ottawa, Michael Tremblett of Northern Arm, Newfoundland, Warren Hooper of Glace Bay, Nova Scotia and Interlife Financial of Mississauga, Ontario. QFS also acquired the Equitable Life general agent contract held by Toronto firm Prolink Insure.

The MGA Cott founded intends to build on this momentum. It will continue to target Ontario, Quebec and the Atlantic provinces. Fiona Cuddy told Insurance Journalthat independence is the cornerstone of her strategy. The president of Qualified Financial Services knows both sides of the game. For 10 years, she was associate vice-president of general agent partnerships at Canada Life before becoming president of QFS. 

The consolidation movement has already absorbed several smaller players, yet Cuddy believes there are still many MGAs of that size willing to sell. “As an MGA ranked in the top ten across Canada, we are very well positioned to acquire MGAs that are still independently owned,” she says.

These MGAs appreciate QFS’s commitment to independence, Cuddy says. “One of our competitive advantages is being the largest independently owned MGA in Canada. So many MGAs are now owned by a larger corporation or a carrier. We regularly talk to advisors that don't like the idea of a carrier having a greater insight into their private business,” she says. 

QFS also sees its diversity as an asset. Cuddy says that beside her, only two other women run an MGA in Canada: Terri Botosan (HUB Financial), and Amy Tong (A.T. Financial Group). “Many female advisors and next generation male advisors appreciate this differentiator which gives us a more contemporary edge,” she says. 

You are not a number!  

Kevin Cott also endorses consolidation: “We continue to seek opportunities for acquisitions that we feel fit with our culture as an independent, family-owned MGA.”

Several of Kevin Cott’s children help run this family business. Haley Cott is strategic initiatives manager, Corey Cott is marketing and corporate events manager, and Jesse Cott is corporate communications manager.

After acquiring Marketing Concepts Group in 2011 and PerformINS in 2013, QFS has reached the big leagues. It wants to stay there. “We've been very busy with acquisitions lately, and have been more focused on that then anything else. We've been looking for firms that wanted to align with an independent MGA that is large enough,” Kevin Cott explains. 

He wants to make sure his firm is big enough to have a seat at the table with the carriers, but small enough to know your name as an advisor. “At QFS, you are not a number.” 

All the same, QFS is no middleweight, he adds. “We are very large and we are going to stay an independent player. We now have more than 2,000 advisors under contract, with 1,000 of them doing business with us regularly.”

Is anything left?  

Kevin Cott believes that sizable players could still be targeted by insurers. MGA acquisition may seem dormant, but it's not over, he says. “We’ve seen large acquisitions; I think we’ll see more. They (the carriers) could try to buy IDC Worldsource Insurance Network (IDC WIN), HUB Financial, QFS… A large integrated group can’t support advisors the way they were before.” Even for the right price, Cott would not be interested in selling to such an acquirer, he says. 

Organic growth model 

In Quebec, Groupe Cloutier remains true to its “advisor by advisor” organic growth model. CEO Patrick Cloutier has held true to this model he took the reins from Gilles Cloutier, now chairman of the board.

Vice-President and General Manager of Groupe Cloutier Michel Kirouac echoes this stance. “We prefer to grow internally, and seize opportunities by buying business from smaller MGAs than us. Rather than acquiring managing general agents, we have also opted for arrangements with those who have less production than we do with a supplier or two. We also recruit a lot of advisors,” he says.

Another major Quebec-based MGA, MICA Firms in Brokerage of Financial Services, is focussing on organic business growth and advisor recruitment, says president Gino-Sébastian Savard. All the same, the consolidation of managing general agents is on his radar. “I don't want to be one of the last bastions of independence when the others are owned by insurers. One day or another, everyone has a price.”

PPI, Financial Horizons Group, Aurrea Signature and Copoloff Insurance Agencies have all been bought out, MICA's president adds. “The remaining independents are smaller in volume than Groupe Cloutier and us.”

Savard and Kirouac each named a number of players, including PEAK Financial Group and Financière S_Entiel of the AgenZ network, MSA Financial, Boulos Groupe Financial, Groupe Financier Multi Courtage... the list goes on. Synex Business Performance, owner of the managing general agent AFL Group, is in a league of its own. It generates its premium volume largely from P&C insurance.

“IDC WIN would be a great catch for an insurer,” adds Savard. He believes that by making a series of acquisitions, as PPI and Horizons did before selling to insurers, IDC WIN makes life easier for a potential acquiring insurer, while benefitting at the same time. “It becomes easier for IDC WIN to put a price on the deal, working with things like critical mass and Canada-wide representation,” he says.

Seeing carriers compete with MGAs dismays Gino-Sébastian Savard, but he is confident he can play his cards right. “Advisors who are committed to independence are moving, and that's good for us,” he says. “But eventually, we have to stay strong enough that an insurer cannot terminate its distribution contract with us with impunity. When we're several independents, they can't do that.”

Last bastion of independent distribution 

MICA's president believes that MGAs are the last bastion of independent distribution and of the current life and health insurance compensation model. He compares his sector to the securities industry, where the percentage of compensation for investment advisors has dropped dramatically. Most brokers in that industry are owned by banks. “If a network that is owned by an insurer lowered the level of compensation, representatives would exit in droves. If we're not around anymore, they can do whatever they want.”

Terri Botosan, CEO of subsidiary HUB Financial, thinks the proprietary insurer model affects MGA independence slightly. “I don’t have evidence that carrier-owned MGAs will push the carrier product more, but I think it’s logical.”

Denis Blackburn isnot worried about the independence of advisors who deal with Financial Horizons Group, an MGA acquired by Canada Life in 2017. Blackburn became president, Quebec region, of FHG in 2020, replacing James McMahon, who returned to the independent advisor practice at Planif-Globale.

After analyzing FHG's total production in Quebec in 2020, Blackburn noted that Canada Life was not among his top three carriers. “If Canada Life devotes more resources to doing business with Financial Horizons Group, we are open to the idea. Canada Life is working on strategies to increase visibility, but there's no pressure,” he adds.

He emphasizes his impartiality. “I've always said that independence is crucial. I will not force an advisor to sell Canada Life products. If another carrier doubles its team and sets its sights on Financial Horizons Group, advisors will definitely sell more of its products.”

Consolidate trend shifting 

Yan Charbonneau, CEO and founder of Synex Business Performance, thinks the COVID-19 pandemic has dampened the consolidation wave that had been sweeping through the MGA channel for years. “Consolidation is shifting to the smaller firms,” he says. He hopes to continue buying group practices in order to cross-sell with his P&C broker.

In recent months, he has acquired mostly P&C insurance firms, including Calgary-based Sharp Insurance in April 2021. Barely a week earlier, he acquired GoToInsure, a group of firms in Eastern Canada.

In January 2021, Invessa Insurance and Financial Services became his first acquisition under the Synex brand. The three recent transactions swelled Synex’s total premium volume in P&C insurance to $360 million.

Charbonneau is less drawn to the MGA sector, where he feels consolidation has largely run its course. “There are big national players in place, there's not that much room in that sector. We'll be moving more toward group insurance, and brokers who want to sell a block of business,” he says.

Prioritizing group and P&C 

Synex's CEO says he has not done a transaction involving a group firm since acquiring Patry, Poulin, Trahan & Associates (PPTA) in July 2019. That will change in 2021. “We are very busy these days with various transactions in different sectors. We are off to a strong start with group insurance and P&C insurance,” Charbonneau explains.

Regarding P&C acquisitions, Synex took the opportunity during the challenging early days of the pandemic to step back and fine-tune the internal structure, which has put the model back on track.

Focussing on these two priorities means that other projects are being sidelined. “Plans to upgrade our technology platform have been shelved,” says Yan Charbonneau. Shortly before concluding the Sharp Insurance and GoToInsure acquisitions, he said that more acquisitions may come to fruition in the coming months. “Every time we double in size, we have to review our strategic planning. We will double several times this year. Before we invest in our platform, we are waiting to see if we acquire any technologically advanced firms.”

Synex wants to develop a centralized system for all of its divisions, which does not exist in the market today, Charbonneau says. “Once our transactions are completed, we will have all the BMS systems on the market, Power Broker, Applied TAM (from Applied Systems), and Vertafore Canada (now owned by Roper Technologies). On top of that, we have the individual and group insurance back office systems. It's a bit complicated.”

HUB International also intends to continue acquiring P&C insurance and group insurance at an accelerated pace. In individual personal insurance, it acquired the MGA business of insurer ivari and online solution specialist LSM Insurance Services in 2020.

HUB Financial CEO Terri Botosan says she has been with the MGA for over 20 years. Acquisitions have always been a key part of its strategy. “Three years ago, we identified an opportunity to enter the group benefits market and have now likely become the biggest benefits broker in Canada.” Regarding the two individual insurance acquisitions, Botosan says she is always on the lookout for firms with the right fit with respect to culture.

Large players taking a break?  

Jim Virtue, President and COO of PPI, thinks that because MGAs need to provide a technology interface between advisors and insurers, smaller MGAs will find it very difficult to compete. Combined with the high average age of MGA owners, this will continue to push the industry toward consolidation.

PPI has slowed the pace of acquisitions, however. “For now, we’re focussing on organic growth. We’ve recently finished integrating Hollis into our systems, but we’re always interested in appropriate acquisitions,” Virtue explains.

IDC Worldsource Insurance Network (IDC WIN) made two acquisitions in Quebec in 2020. President Phil Marsillo mirrors this stance. “We're not averse to acquisitions. There are always opportunities. In Quebec, it was easy because Aurrea Signature, Copoloff Insurance Agencies and IDC WIN had the same culture, the same strategy, and we needed to get a solid foothold in Quebec.”

Marsillo felt it was essential to have a strong presence in the province, where he believes there is room for growth. “We also wanted to show that IDC WIN is an MGA across Canada,” he says.

IDC WIN also has a significant presence in British Columbia and Alberta, along with four offices in the Maritimes, with about a dozen employees. As a subsidiary of Guardian Capital, the MGA is geared up to achieve its ambitions should an opportunity arise.