OMERS injects $1B in Fairfax deal
Gives pension fund 21% piece of Allied World
• OMERS, the pension plan for Ontario’s municipal employees, is making its largest investment in an insurance company to date by injecting US$ 1 billion to help fund Fairfax Financial Holdings Ltd.’ s $ 4.9- billion purchase of Allied World Assurance Company Holdings AG.
The investment will give OMERS a 21 per cent stake in Allied World, and is the third such arrangement between the pension fund and Fairfax since 2015.
The l atest deal came together three months after OMERS hired insurance industry veteran Sharon Ludlow as it sought to tap in to the $ 5- trillion global insurance sector.
“It is one of the largest i ndustries i n the world,” Ludlow said. “As I look out … I would see us expanding those ( recent Fairfax) partnerships with other strategic partners and investing i n other i nsurance operations both in the life and in the property and casualty space globally.”
In t he past couple of years, OMERS and Fairfax have co- invested in two other insurance ventures, Brit PLC in United Kingdom and Eurolife, the largest insurer in Greece.
Ludlow said Friday’s Allied World transaction was a natural progression for OMERS.
“Because we have had that relationship with Fairfax, and because of my arrival, this clearly was an interesting opportunity for us to expand our investments in the insurance space,” she said.
Fairfax struck a deal in December to purchase Allied World for $4.9 billion in cash and stock, the largest single transaction to date for the holding company whose businesses including property and casualty insurance, reinsurance and investment management.
In a statement Friday, Fairfax said the contribution from OMERS would allow it to increase the cash component of the US$ 54.00 per share offer to Allied World shareholders. Fairfax also disclosed that it is in ongoing discussions with several other third parties that might participate in the Allied World investment.
The arrangement with OMERS includes a mechanism that would allow Fairfax to buy back the pension fund’s stake over five to seven years.
If that were to happen, Ludlow said OMERS would most likely reinvest the proceeds in the insurance sector.
She said OMERS intends to take minority positions in i nsurance companies, and to continue to work with strategic partners such as Fairfax. By contrast, the Canada Pension Plan Investment Board, which oversees Canada’s l argest pension fund, has bought insurance operations outright and kept their management in place.
In September, CPPIB purchased Ascot, American International Group’s Lloyd’s insurance platform, for US$ 1.1 billion. That investment followed CPPIB’s purchase of reinsurer Wilton Re Holdings Ltd. for US$1.8 billion in 2014.