Royal Bank scoops up Liberty Insurance for US$650 million

Canada’s largest bank will purchase Liberty Life Insurance Co. and Liberty Insurance Services Corp. from parent company Liberty Corp. of Greenville, South Carolina, for close to US$650 million.

According to Peter Currie, the chief financial officer of Royal, that price is about 1.2 times the current book value of Liberty Life. That means a goodwill charge to Royal Bank of about $80 million is attached to the deal.

Nonetheless, the deal looks like a good one for Royal as it gives the bank a major stake in the rapidly consolidating U.S. insurance industry. Liberty Life has about 1.7 million policies through its agents and another 660,000 policies held directly, as well as a sales force of over 625 agents. Royal will also acquire Liberty Insurance Services, one of the largest third-party life and health insurance administrators in the U.S., in the deal.

While some Liberty Life insurance products may be sold in Canada under the RBC Insurance brand, the deal is not expected to have much of an impact on Canadian insurers. The importance of this deal is that Royal Bank is increasingly focusing its acquisitions on business opportunities outside of Canada.

In telephone press conference announcing the deal John Cleghorn, Royal Bank chairman and CEO, fit the deal into the context of the bank’s overall business plan. “Each of our business areas has a mandate to expand globally. This is a solid foothold on the insurance side,” said Cleghorn.

The deal is also the result of legislation recently passed in the U.S. that works to deregulate the financial services industry. Included in that legislation are regulations that allow banks to sell proprietary insurance products through their branches. Similar legislation in Canada continues to disallow Canadian banks from doing the same.

Pending shareholder and regulatory approval, the deal is expected to close by Sept. 30.