The Ontario Teachers’ Pension Plan and Caisse de dépôt et placement du Québec are teaming up on a US$500-million venture to invest in growing insurance companies, a sector whose long-term strategies have proven attractive to Canada’s big pension plans.
The two plans, which together manage more than $500-billion in assets, have provided startup capital to a venture called Constellation Insurance Holdings, formed by insurance executive Anurag Chandra. Mr. Chandra, who will serve as CEO, spent five years at Prosperity Life Insurance Group before it was sold to a group of private investors in January. He left the U.S. company in June.
The idea behind Constellation Insurance is to buy into insurers with plans for long-term growth and boosting profits by growing and realizing efficiencies, Mr. Chandra said in a statement. What the company does not want, he said, is insurers that are trying to fulfill short-term goals by cutting costs or avoiding spending for growth. Constellation will invest in both sellers of life insurance and property and casualty insurers. It will also look at mutual insurers, which are owned by policyholders and have not yet converted themselves into stock corporations.
In a statement, Jane Rowe, Teachers’ executive managing director for equities, said the pension plan was attracted by Mr. Chandra’s “distinctive and successful track record in the insurance sector,” including building “an attractive, high growth insurance platform that generated exceptional investor returns” at Prosperity.
Major Canadian pension plans have all invested in the insurance sector in recent years, drawn by the prospect of steady returns and growth for patient investors.
“The insurance industry provides stable, sustained returns over a long-term horizon. Through its resistance to economic cycles, this sector is perfectly aligned with the investment profile that CDPQ seeks,” said Caisse spokesman Jean-Benoît Houde.
The Ontario Municipal Employees Retirement System (OMERS) paid US$1-billion in 2017 for about 21 per cent of Allied World Assurance Company Holdings AG, joining Fairfax Financial Holdings in its bid to acquire the insurer. OMERS also bought just less than 30 per cent of Brit PLC from Fairfax in 2015.
The Canada Pension Plan Investment Board spent $2-billion in 2014 to buy Wilton Re Holdings Ltd., a life insurance and reinsurance company. CPPIB spokesman Michel Leduc said insurance is a “platform” where CPPIB has targeted a line of business it would like to be in, purchased a company with a management team it believed in and used that vehicle to expand. Since 2014, Wilton has made two major acquisitions.
“A headwind on the Canada Pension Plan is mortality risk,” he said, explaining that as CPP beneficiaries live longer, the plan owes more in benefits, which ultimately requires more assets. “Life insurance is a fantastic hedge – as people live longer, they continue to pay their contractual obligations.”
Mr. Chandra was chief operating officer at Allstate Financial’s life insurance, retirement and voluntary benefits business before joining privately owned Prosperity as CEO in May, 2014. The company had bought an almost century-old Virginia concern called Shenandoah Life Insurance Co. and completed a deal for New York-based SBLI USA Mutual Life Insurance Company Inc. after his arrival.
In January of this year, an investment partnership that included hedge fund Elliott Management Corp., insurance-focused private investment firm Wand Partners Inc. and Mr. Chandra closed a deal to buy Prosperity. An Elliott spokesman said Wednesday the firm could not speak to whether Mr. Chandra maintained his ownership in the company after his departure.
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