Intact Financial Corp. (IFC.T), Canada's largest property and casualty insurer, said Tuesday it agreed to buy the Canadian division of France's AXA Group for C$2.6 billion (US$2.66 billion) in a deal that combines two of the country's largest insurers.

The deal boosts Intact's direct premiums written by C$2 billion to more than C$6.5 billion, almost double that of its nearest domestic competitor, Aviva Canada. AXA Canada, which has 2,300 employees, is the sixth-largest home, auto and business insurance company in Canada.

Toronto-based Intact will fund the purchase with C$500 million of its own excess capital and through the issue of about C$800 million of equity. It will also tap credit facilities of C$1.3 billion. The transaction is expected to close in the fall, the company said.

The combined entity will result in annual cost savings and efficiencies of C$100 million, the company said. The acquisition is expected to generate an internal rate of return of 20% and lift annual earnings per share of 15% in the mid term. It expects book value accretion of 6%.

The deal also lessens Intact's reliance on automobile insurance, Chief Financial Officer Mark Tullis said on a conference call.

AXA Canada parent AXA SA (CS.FR) is expected to Wednesday outline details of an ambitious five-year strategic plan launched late last year. The French insurance giant aims to show investors it's on track to expand again in the aftermath of the financial crisis.

Intact said it expects to increase its profitability and benefit from greater earnings stability resulting from a wider diversification of its activities across the country and business lines.

Aviva Canada, a unit of U.K.-based Aviva PLC, underwrote C$3.3 billion in direct premiums last year.

-By Caroline Van Hasselt, Dow Jones Newswires; 416-306-2023; caroline.vanhasselt@dowjones.com

(Carolyn King contributed to this article.)