Montreal-based Desjardins Group is buying State Farm Canada in a co-operative deal that will make it the second-largest property and casualty insurer in Canada.

Desjardins, a cooperative financial group with insurance and mutual fund interests, is buying State Farm’s property and casualty and life insurance business, as well as its mutual fund, loan and living benefits portfolio.

It said it would continue to operate State Farm’s business under the State Farm name and maintain its network of 1,700 employees.

Desjardins CEO and president Monique Leroux said the deal provides the Quebec company with an opportunity to build its business across Canada.

"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," she said, adding that more such collaborative deals could be in Desjardins’ future.

Leroux said Desjardins has allocated capital to build the State Farm business.

After the deal closes in January 2015, Desjardins would have a property and casualty premiums of $3.9 billion, up from approximately $2 billion now.

The deal value is $1.6-billion, split between investments from three stakeholders.

Crédit Mutuel, a France-based cooperative financial group and long-term partner of Desjardins Group, will invest $200 million in the deal.

As part of the agreement, State Farm is buying $450 million in Desjardins preferred shares, while Desjardins has pledged $700 million of capital to grow the property and casualty business and $250 million for the life and mutual fund business.

All three partners are mutual or cooperative businesses, which are widely held by their members.

State Farm estimates it has about 1.2 million customers in Ontario, Alberta and New Brunswick.

The property and casualty business was hard hit in 2013 by flooding in Ontario and Alberta.