The transaction, which is subject to regulatory approval and customary closing conditions, is expected to close in January 2015.

It will reinforce Desjardins’ position as the fourth largest life and health insurer and the second largest P&C insurance provider in Canada with annual gross written premiums of about C$3.9bn.

As per the terms, the acquired entities will be operated under the State Farm brand for an agreed license period.

State Farm will invest C$450m in non-voting preferred shares into Desjardins Group’s post-closing property and casualty (P&C) insurance unit, which will comprise State Farm Canada property and casualty operations.

Crédit Mutuel, a European cooperative financial group and long-term partner of Desjardins, will invest C$200m, while Desjardins will allocate up to C$700m funds to support the growth of its P&C business and its Financial Security and certain other units will provide C$250m for the life insurance, mutual fund, loan and living benefits components of the deal.

Desjardins Group chair of the board, president and CEO Monique F Leroux said that the agreement between State Farm and Desjardins, combined with the support of its long-term French partner, Crédit Mutuel, brings together three financial cooperative and mutual organizations to create an insurance leader in Canada.

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"This transaction is clearly aligned with Desjardins’ strategic objectives to expand insurance distribution across the country and develop business opportunities with mutual and cooperative organizations," Leroux added.

Barclays acted as financial adviser to State Farm, while Desjardins Securities and BNP Paribas provided financial advisory services to Desjardins Group.