Fairfax Financial sells Singapore insurance business for $1.6B

Partnership with Japanese firm provides potential to grow in Asia

TORONTO — Fairfax Financial Holdings Ltd. is selling its stake in Singaporean insurer First Capital Insurance Ltd. for US$1.6 billion as part of a broader partnership agreement that will ensure the Canadian insurance and investment company receives 25 per cent of the subsidiary’s profits.

The Toronto-based company said on a conference call Thursday that the all-cash deal to sell its 97.7 per cent stake in the business to Japan’s Mitsui Sumitomo Insurance Co. is part of a “strategic alliance” with Mitsui, under which the companies will pursue global partnership opportunities.

The partnership provides Fairfax with the potential to gain exposure in other regions of the world as well.

Canadian insurance companies have targeted Asia for growth as burgeoning middle classes mean increased demand for protections and benefits that insurers offer.

The Toronto-based company said the sale of First Capital will net US$900 million of after-tax profit, or US$33 per share. Fairfax will take a 25 per cent quota share, under which the insurer will share a certain percentage of premiums and losses.

Fairfax expects its ongoing vested interest in First Capital’s existing and future business will see significant returns.

“If First Capital writes $100 million worth of business, we’ll take a quota share of 25 per cent, which will be $25 million and that $25 million will be going into one of our companies,” Watsa explained.

“You’ll get 25 per cent of the earnings and you’ll get 25 per cent of the growth, that made it a very unusual and attractive transaction.”