In a move that will catapult a credit union to become one of thelargest providers of property and casualty insurance in Canada,Desjardins Group said it plans to purchase those divisions fromState Farm Canada, along with its life insurance operations andCanadian mutual fund, loan and living benefits companies.

The transaction is expected to close in January 2015, subject toapproval from regulators and compliance with customary closingconditions, the $210 billion cooperative Desjardins Group in Lévis, Québec, and State Farm inBloomington, Ill., said on Jan. 15.

Following the closing, Desjardins will operate the newlyacquired State Farm Canada businesses under the State Farm brandfor an agreed license period, the companies said.

As part of the agreement, State Farm said it will make a $450 million investment innon-voting preferred shares into Desjardins’ post-closing propertyand casualty insurance business, which will include the newlyacquired State Farm Canada property and casualty operations.

In addition, Crédit Mutuel, a major European cooperativefinancial group and long-term partner of Desjardins, will invest$200 million. Desjardins said it will allocate capital ofapproximately $700 million to support the growth of its P&Cbusiness.

Desjardins Group’s Life and Health Insurance subsidiary,Desjardins Financial Security and other units will allocate $250million for the life insurance, mutual fund, loan and livingbenefits components of the agreement.

Desjardins will become the second-largest P&C insuranceprovider in Canada with annual gross written premiums ofapproximately $3.9 billion, up from approximately $2 billion,according to Desjardins. The transaction also strengthensDesjardins’ position as the fourth-largest life and health insurerin Canada, the company noted.

Once the transaction is finalized, State Farm’s 1,700 Canadianemployees and more than 500 Canadian agents will continue to servemore than 1.2 million customers in Ontario, Alberta and NewBrunswick, the companies said.

Desjardins said it expects the transaction will lead to jobcreation in the coming years in Canada, including Québec. Thecompany said it will also continue to operate its other insurancebrands separately across the country.

With assets near $200 billion, Desjardins is the largestcooperative financial group in Canada and the fifth-largestcooperative financial group in the world, the financial institutionsaid.

State Farm and its affiliates are the largest provider of carinsurance in the U.S. and a leading insurer in Canada, the companysaid. In addition to providing auto insurance quotes, its 18,000agents and more than 65,000 employees serve 81 million policies andaccounts – more than 79 million auto, home, life and healthpolicies in the United States and Canada, and nearly two millionbank accounts.

Here in the U.S., the Desjardins acquisition of State FarmCanada isn’t expected to impact State Farm operations, AndréChapleau, Desjardins media relations strategic adviser, told CreditUnion Times. “We do feel however, from a Canadian perspective, thatby concluding this deal with mutuals such as State Farm and theCrédit Mutuel, from France, along with Desjardins Group, thelargest financial co-operative group in Canada, we do help theco-op movement gaining more awareness and positioning it as aviable alternative to traditional banks,” Chapleau said.

Indeed, Desjardins is looking at the long-term implications ofsuch a pivotal acquisition, according to

Monique Leroux, board chair and president/CEO of Desjardins.

“It also provides a foundation for exploring additionalopportunities for even greater collaboration in Canada in thefuture,” Leroux said in a statement. “This transaction is clearlyaligned with Desjardins’ strategic objectives to expand insurancedistribution across the country and develop business opportunitieswith mutual and cooperative organizations.”

Edward B. Rust Jr., State Farm chairman and CEO, reiterated justhow far the purchase will go.

“The transaction will create a well-positioned, Canadian-focusedprovider of property and casualty, life and financial servicesproducts that will expand on the operations State Farm’s Canadianemployees and agents have built in Ontario, Alberta and NewBrunswick,” Rust said.

State Farm certainly has strong connections to credit unions inthe U.S. In October 2006, the 12 credit unions that serve thecompany’s employees made history when they merged into one $2.84billion financial institution at the time. State Farm Federal Credit Union in Bloomington, Ill., is now a$3.9 billion cooperative serving more than 130,000 members.

Credit Union Times contacted Tom DeWitt, president/CEO of StateFarm FCU, for a reaction to the Desjardins pending acquisition ofState Farm Canada’s insurance business. DeWitt referred questionsto Phil Supple, State Farm’s director of public affairs.

“We still need to proceed through the customary closing detailsand regulatory review. That said, we have shared, generally, thatwe do not expect this transaction to have any impact on State FarmU.S. operations,” Supple said.

At the time of the 12-way State Farm credit union merger, therewere also concerns on whether the newly merged State Farm FCU wouldeventually merge with State Farm Bank, a $14.9 billion financial institution thatreceived a thrift charter from the Office of Thrift Supervision inNovember 1998. Just as those claims were emphatically denied backin 2006, Supple said a merger will not occur.

“It is still our position that the two entities, State FarmFederal Credit Union and State Farm Bank, will remain separate,”Supple noted.

Meanwhile, the pending acquisition by Desjardins makes thecompany truly a national P&C player in Canada, outside of justQuebec and western Canada, with greatly increased distributioncapabilities in important geographies like Ontario, said ToddEyler, research director for Boston-based Aite Group’s insurancepractice.

“For property and casualty lines of business, by becoming thesecond largest P&C writer in Canada, Desjardins should benefitsignificantly from scale-related advantages (including) discountsand high service guarantees from their claims supply chain vendors– auto repair shops, rental car providers, and other types ofcontractors and service providers,” Eyler said.

Within life and annuity-related businesses, interest rates andinterest margins remain at historically low levels so spreadingfixed costs over a larger asset base helps margins, Eylerexplained.

“Increased distribution scale with life and annuity benefitswill also allow Desjardins to benefit more from baby boomer-relatedpurchases of these kinds of products,” he said. “Increased scalewill also make it easier to invest in technologies to meet thedirect channel needs of millennial customers.

Looking even further down the road, the transaction sends “apowerful signal reinforcing the long term economic value ofstitching banking and insurance into a one-stop financial servicesshopping experience for consumers,” said Jeff Chesky, president/CEOof Insuritas, an East Windsor, Conn.-based provider of outsourcedinsurance agencies based that counts credit union among itsclients.

“This will remind credit unions in the U.S. how vitalnon-cyclical fee income will be to their long-term financialsuccess,” Chesky offered.