Hub Financial Inc. has become one of Canada’s largest insurance managing general agents by aggressively acquiring smaller, profitable agencies. And even though the tables were turned in late February, when its U.S. parent, Chicago-based Hub International Ltd., agreed to be acquired by two major private-equity interests, it will be “business as usual” for the Canadian MGA.

“We’re going to continue our growth strategy in Canada,” says Kirk James, Hub International’s chief corporate development officer. “There is not going to be any change in operations at all.”

Hub International entered into an agreement with Apax Partners Worldwide LLP, a London-based private-equity firm, and New York-based Morgan Stanley Principal Investments, in which the latter two firms will acquire Hub International for approximately US$1.8 billion. Hub International’s board of directors is recommending that its shareholders agree to the deal, which will pay them US$41.50 a share.

That’s an increase from the original offer of US$40 a share, in response to competing bids for Hub International since the deal was announced. The transaction is expected to be completed by the second quarter of 2007. If the amended agreement is terminated, Hub will have to pay a fee of US$53 million.

The deal involves Hub’s senior management team — on both sides of the Canada/U.S. border — putting up US$65 million of its own money to participate in the equity of the company once acquired. “The entire management team is staying in place in our executive roles,” says Marty Hughes, Hub International’s chairman and CEO.

Apax is the major player in the purchase agreement, notes Hughes. Morgan Stanley was brought in by Apax “as a kind of limited partner,” he explains. However, he notes, while Apax will be represented on the board of directors, it will not be involved in Hub International’s operations.

Moreover, the deal will enable Hub International’s senior management to concentrate on running the firm without the distraction of seeking private investment, says Hughes, who has been spending 60 to 70 days a year “meeting with Wall Street. I won’t have to do any of that anymore.”

That’s good news for the entire organization, says Terri DiFlorio, president of Hub Financial, which is based in Woodbridge, Ont., adding that Apax is investing in Hub International “because of its proven track record. [Apax is] not interested in making any changes.”

For Hub Financial, that track record has generally meant targeting the mid-market, says DiFlorio: “I believe it’s where we excel. We can help those advisors — keep them in touch and keep them independent.”

Hub Financial now serves 3,000 independent life insurance brokers and 200 mutual fund advisors. Some of those insurance advisors also sell mutual funds, DiFlorio says.

Meanwhile, DiFlorio says, Hub Financial’s scope makes it a leader among Canadian MGAs, as it gives the firm the ability to advocate for advisors and their clients with insurers. “We have the ability to be proactive for advisors with their case management,” she says. “The size and scale we have should give advisors some comfort.”

Hub Financial differs from many MGAs, which put 80%-90% of their business through to one insurer, says DiFlorio. With Hub Financial, “no one carrier gets more than 17% of our business,” she says. “That way, I feel we can help advisors do what’s best for their clients.”

Hub Financial has developed “an economy of scale” and “fixed-cost structure” that allow it to adapt its normal offering of marketing and administrative services “to as much or as little” as an advisor needs, she says.

Hub Financial also has agreements with larger firms that may use only its back-office services. “They’re only interested in our life application processing,” she says. “Their advisors may not access our marketing services whatsoever.”

DiFlorio has been at the helm of Hub Financial for almost seven years, and her career in the insurance industry spans 21 years. She spent the first 12 years at Financial Life Assurance Co. of Canada (now Manulife Financial Corp.) in a variety of administrative positions, concluding as vice president of marketing.

DiFlorio left Financial Life in 1998, had a child and spent six months on maternity leave before going to Unity Life of Canada as vice president of marketing.

While she was at Unity Life, Hub International was beginning to purchase MGAs in the Canadian market and was realizing that its Canadian offices — in Vancouver, Calgary, London, Ont., and Montreal, collectively known as Hub Financial — didn’t have a common operating strategy.

@page_break@So, in 2000, Hub Financial approached DiFlorio to look at the idea of developing a harmonized national strategy for the Canadian business. “I had dealt with a number of the MGAs Hub Financial was purchasing,” she says.

In the almost seven years since then, she says, Hub Financial “has evolved significantly.”

When DiFlorio joined Hub Financial, the joke at the Canadian company was that there were four head offices because the four MGAs were doing things differently. One would have higher payouts and provide less administrative support, while the reverse situation would be the case at another.

The first step in streamlining these variations was to bring management together. “We had to agree on our destination before plotting the route,” DiFlorio says.

Next came centralizing administrative operations, settling on an approach to share information and computer technology, and picking the best of “value propositions” from across Canada. For example, the Vancouver office offered advanced case planning, so the company decided to replicate that across the country.

In the past seven years, Hub Financial has added to its initial four regional offices. There are new offices in Victoria and New Westminster, B.C., as well as those in Ottawa and Woodbridge.

DiFlorio and other company executives — its chief financial officer/chief operating officer and its chief compliance officer — are now based in Hub Financial’s “central services office” in Woodbridge. The chief marketing office is based in Vancouver. Otherwise, there are regional vice presidents or regional directors in the other offices, DiFlorio says.

In 2002, Hub Financial made a strategic choice to expand its fund offerings. Although DiFlorio notes the firm already had a “strong presence in the West selling segregated funds,” it bought mutual fund dealership Sun Life Financial Advisory Services Inc. from Sun Life Financial Inc.

“Strategically, it was an excellent acquisition for us,” DiFlorio says. “A lot of advisors in this purchase were licensed in Quebec to sell insurance and mutual funds.”

As a mid-market dealership, Sun Life Advisory Services was a good fit for Hub Financial because the acquisition enabled the company to integrate its life insurance and investment services, she says.

Hub Financial also employs accountants and lawyers as tax and estate planning specialists. They are available to answer advisors’ questions and to accompany advisors to client meetings. “Ultimately, we want the advisors to become more comfortable and do it themselves,” DiFlorio says.

Similarly, Hub Financial had to decide on one IT system for the entire country. One of the most innovative features its present system offers is data feeds from two of Canada’s largest insurers, AIG Life Insurance Co. of Canada and Canada Life Assurance Co.

DiFlorio explains that this feature enables advisors who have “pending business” — applications that are still undergoing the underwriting process — with either company to monitor the applications through one Web site. In the next few months, Hub Financial hopes to add three more insurers to this system.

Compliance is a growing department at Hub Financial. “The ability to keep advisors safe” is extremely important to the firm, DiFlorio says. With the continual evolution of compliance management, Hub Financial wants to help its advisors manoeuvre through the regulatory landscape.

Again, this is an area in which Hub Financial’s size matters because it would be very difficult for a smaller MGA to offer a similar high level of compliance backup, she notes.

Meanwhile, Hub Financial continues to add to its network as well as its bottom line. On July 11, 2006, it announced that it had acquired a life insurance portfolio from Standard International Underwriters Ltd.

SIU had operated in all Canadian provinces, serving thousands of independent advisors, DiFlorio says. Hub Financial has now integrated SIU’s servicing activities into its own Canada-wide operations. IE