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American International Group’s offices in New York.ERIC THAYER/Reuters

The country's largest pension fund could be seeking a toehold in the historic Lloyd's of London insurance marketplace.

Canada Pension Plan Investment Board is reportedly in early talks to buy a division of U.S. insurer American International Group Inc., according to The Wall Street Journal. Although a deal is far from certain, New York-based AIG is in the process of restructuring and selling assets.

Such an acquisition of Ascot Underwriting Holdings Ltd. – a member of Lloyd's – comes at a time when other Canadian investors have shown interest in Lloyd's international operations.

Lloyd's is an insurer, but it's not a company in the traditional sense. It is a 328-year-old marketplace where insurance policies are underwritten by a network of 97 member companies as well as individuals and groups backing policies with private capital.

Last year, Fairfax Financial Holdings Ltd. acquired London-based specialty insurer and Lloyd's member Brit PLC in a deal valued at about $2.3-billion. Fairfax later said the Ontario Municipal Employees Retirement System (OMERS) pension fund would come in as a partner, buying a 30-per-cent stake in Brit. Fairfax said at the time that it was interested in access to the Lloyd's market, as well as building insurance and reinsurance expertise in new areas.

Like Brit and Ascot, each member of Lloyd's has a different risk appetite and insurance specialties. Ascot's largest business in terms of premiums written is its property insurance, which covers damage to marine, aviation and other transport companies. Other significant insurance lines focus on motor vehicles and the energy sector. Lloyd's insurers are also known for taking on some unusual kinds of risk, and Ascot is no different – it can insure jewellers, cash in transit and fine art.

When a client wants to take out insurance through Lloyd's, that bundle of risk is shopped around to different members of the market, who may divide up the coverage. The market system appeals to insurance companies in part because they can provide coverage anywhere in the world given Lloyd's strong credit rating.

Canada has tight ties to Lloyd's. The country is the second-largest generator of premiums outside of the Britain, making up 6 per cent of the insurer's global premiums, a share that has ticked up in recent years. Lloyd's insurers provide liability, commercial property and aircraft insurance in Canada, among other types of coverage.

Lloyd's has been pursuing a strategy of international expansion in new insurance markets and it recently opened offices in China and Colombia, said Sean Murphy, president of Lloyd's in Canada. Within Canada, "we've grown quite substantially over the last couple of years," he said.

CPPIB first dipped into the insurance market in 2014, buying a U.S. life insurance company called Wilton Re Holdings Ltd. for $1.8-billion (U.S.). It said at the time that the long-term liabilities and investment strategies of this insurance business were a good match with the long-term strategy of the pension fund. Being a part of the Lloyd's family would be a different investment proposition, since the marketplace specializes in property, casualty and specialty insurance lines.

AIG doesn't formally break out the earnings of its Ascot insurance business in its annual reports, but according to financial reports from Lloyd's, Ascot's net written premiums hit £368-million ($485-million) in 2015, factoring in reinsurance costs. The company's profit for the year was £37.5-million ($49.5-million).

That's smaller than Brit's business. In 2015, Brit's net written premiums were $1.4-billion, and profit for the year was $99.6-million.

CPPIB declined to comment on speculation that a deal is in the works.

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