The Canada Pension Plan Investment Board is buying U.S. insurance company Wilton Re Holdings Ltd. for $1.8-billion (U.S.), saying the company will give CPPIB a base to begin growing its holdings in the U.S. insurance sector.
CPPIB, which manages the assets of the Canada Pension Plan, said Friday it is buying Wilton Re from a group of investment funds led by Stone Point Capital, Kelso & Company, Vestar Capital Partners and FFL. The deal is subject to a variety of regulatory approvals.
The purchase follows CPPIB's "platform acquisition" strategy, said André Bourbonnais, senior vice-president of private investments at CPPIB. This involves investing in a business or group, and then providing capital to build the business, often through mergers with other businesses. CPPIB has also been investing in agriculture. It most recently made a $128-million purchase of a portfolio of Saskatchewan farmland in December last year.
"We have a fair amount of capital to invest, and a relatively limited amount of human capital," Mr. Bourbonnais said in an interview. "We like those platform investments where we think we've identified a fantastic management team...then we can provided capital to various industries, and advise the management teams to be able to grow that platform to give us scale in its particular asset class."
Wilton Re is CPPIB's first direct investment in the insurance sector. The company provides life insurance and reinsurance to U.S. life insurance companies, and has been a leading acquirer of blocks of life insurance policies from other firms. Since it was founded in 2005, Wilton Re has invested over $1.7-billion in reinsurance that is currently in force and in acquisitions, CPPIB said in a release.
Reinsurance is insurance purchased by insurance companies – often from a number of different reinsurers – to spread their risks and protect the firm in the case of major claims.
Mr. Bourbonnais said blocks of life insurance are an asset class that appeal to CPPIB's investment time horizon. "The closed book of life insurance generates cash flow over multiple decades and they're very well suited for a long-term investor like us," he said.
CPPIB first began looking for an investment in the life insurance space about 18 months ago, with talks intensifying in the last six months when the fund identified the platform it wanted. CPPIB considered the sector carefully. "Buying an insurance company, because of the operational complexity for us, was not necessarily something we had in mind," Mr. Bourbonnais said. "But we were always interested in the insurance sector."
Wilton Re appealed to CPPIB not only because of its management team and financial standing, but also because of its former ownership. The private equity firms that controlled Wilton Re had been invested in the company for seven or eight years, Mr. Bourbonnais said, and CPPIB thought it was an opportune time to approach the investors to propose a transaction.
CPPIB plans to grow its holdings in the U.S. insurance sector, but will leave the identification of possible bolt-on acquisitions and other investments to Wilton Re CEO Chris Stroup and his team. The continued involvement of the insurer's management team was a key feature of CPPIB's investment.
"We're going to be a provider of capital, but we're going to let Chris and his team do what they do best, which is identify those opportunities and …bring us the acquisitions that they think will be accretive to our investments," Mr. Bourbonnais said.
Mr. Stroup said in a statement that CPPIB's investment would give Wilton Re the capital resources to accelerate growth and expand its businesses such as middle market insurance, and be more competitive.