Intact Financial Corporation (IFC), a Canada-based property and casualty insurer, has agreed to acquire AXA Canada, a subsidiary of France-based AXA Group, for $2.6bn.

The transaction will increase Intact Financial’s direct premiums written by CAD2bn to more than CAD6.5bn.

IFC said that the acquisition of AXA Canada, the sixth h largest home, auto and business insurance company in the country, is expected to generate an internal rate of return of 20% and provide annual accretion to operating earnings per share of 15% in the mid-term.

According to the Intac Financial, it will fund the purchase of AXA Canada using CAD500m of its own excess capital, issuing CAD$800m of equity and by accessing credit facilities of CAD1.3bn.

AXA chairman and CEO Henri de Castries said that the sale of Canadian operations represents a further step in AXA’s strategy of redeploying capital towards geographies with higher long term growth prospects.

Intact Financial president and CEO Charles Brindamour said the acquisition creates new opportunities for IFC as it will strengthen its offerings, notably in business insurance, improve its capabilities to support insurance brokers, reinforce the competencies in risk selection, expand distribution platform and deepen the quality of management team.

The parties expect the transaction to close before the end of third quarter of 2011, subject to customary closing conditions and regulatory approvals.