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Shareholders attend the Fairfax Financial Holdings annual general meeting in Toronto on Wednesday, April 9, 2014.Nathan Denette/The Canadian Press

Fairfax Financial Holdings Ltd. is planning to acquire specialty insurer Brit PLC in a $2.3-billion deal that would give Fairfax new insurance capabilities and expanded European operations.

The Toronto-headquartered insurance and investments company run by Prem Watsa said Monday night that it reached an agreement with London-based Brit's largest shareholders. Brit underwrites unique policies to protect against risks such as war and terrorism and the cancellations of sporting events, among other specialties.

Fairfax is buying Brit with the support of private equity giants Apollo Global Management LLC and CVC Capital Partners Ltd., which took the insurer private in 2010 for about £888-million ($1.7-billion). Brit's new owners proceeded to make changes in the company, including restructuring and selling some business lines. They then took the insurer public again in 2014. The initial public offering on the London Stock Exchange raised about £240-million ($460-million).

Less than one year later, Apollo and CVC are looking to exit their investment and have agreed to accept Fairfax's offer and lock up their shares. They own about 73 per cent of the company.

Brit is one of the largest insurers in the Lloyd's of London marketplace, which helps connect clients with insurance for complex risks and one-off items all over the world. Lloyd's isn't a company, but rather a network of 93 different member insurers as well as individuals and groups backing insurance policies with private capital. Each member has a different risk appetite and some have specific insurance specialties.

When a client wants to take out insurance, that risk is shopped around to different members of Lloyd's market, who may divide up the coverage. The Lloyds market has a 327-year history.

"With the acquisition of Brit, Fairfax will have a significant top five position at Lloyds of London," said Mr. Watsa, in a statement, adding that the deal would expand Fairfax's global specialty insurance platform.

Brit specializes in a variety of different kinds of risk, with property, marine and energy insurance accounting for the most premiums in its business. Brit also acts as a reinsurer, selling insurance to other insurance companies. Brit had $1.9-billion in gross written premiums at the end of its third quarter ended Sept. 30 last year. The company had about $200-million in earnings in its 2013 fiscal year, it's most recent full year on record.

This unique specialty insurer would expand Fairfax's business in Europe and have a diversifying effect for its insurance operations, the company said.

Fairfax's existing global insurance businesses have more traditional specialties in property and casualty insurance and reinsurance. The company runs its insurance businesses in a decentralized way; meaning companies under the Fairfax banner are operated independently. Mr. Watsa said in a statement that Brit will also operate this way.

Fairfax already had a good understanding of Brit's business after buying its Brit Insurance Ltd. of London (BIL) business through a subsidiary for about $300-million in 2012. BIL was an insurance and reinsurance company, but it went into runoff, meaning the company stopped writing new policies.

The BIL business was one of the lines sold when Apollo and CVC took over Brit. At the time, the company was struggling as increased natural disaster occurrences, low interest rates and economic instability in Europe hurt its profitability. The company developed a new strategy to improve earnings by curbing expenses and underwriting more profitable business. It hired new underwriters and for its offices, which span from London to the U.S., China and Bermuda.

Brit has been working on driving down its "combined ratio," a key measure of profitability for property insurers. The ratio compares the amount an insurer pays out in claims and other expenses to the amount of premiums it takes in. The lower the ratio, the better a company's underwriting profits. At the end of 2013, its most recent full fiscal year, Brit's combined ratio was down to just over 85 per cent, from more than 93 per cent a year earlier.

Fairfax's Mr. Watsa has said he has significant concerns about the financial markets and economies of North America and Western Europe, and the company hedges much of its investments to protect against market slumps. But Fairfax has also made some bold bets in Europe in recent years.

In 2011, Fairfax invested about $1.5-billion in Ireland's oldest bank, protecting it from nationalization. This stake in Bank of Ireland would become a model for other investments due to its success. More recently, Fairfax has also made investments in Greece's banking, industrial and real estate sectors amid economic and government turmoil.

The deal for Brit is subject to customary closing conditions, as well as approval from regulators and Lloyd's.