The Canada Pension Plan Investment Board is developing a new hub for insurance investments with its $1.1-billion (U.S.) acquisition of Ascot Underwriting Holdings Ltd. and a subsidiary.
The country's largest pension fund said Friday that it would buy specialty property and casualty insurer Ascot and Ascot Corporate Name Ltd. from U.S. insurance giant American International Group Inc. Ascot's management will retain a minority stake in the business.
The CPPIB said it has been looking for acquisition opportunities in this realm for several years, and gains a foothold in global insurance network Lloyd's of London through the deal.
Ascot marks the formation of a new investment platform for the CPPIB – a model where it buys a business and devises a growth plan that often includes acquiring other compatible companies. The CPPIB's other two financial services platforms were formed through the acquisition of U.S. life insurance business Wilton Re Holdings Ltd. in 2014, and middle market lender Antares Capital last year.
"This represents CPPIB overall continuing to expand our global platform strategy," said Ryan Selwood, who was recently promoted to head of direct private equity at CPPIB. "Long-term investments in global financial institutions match well with our competitive advantages – certainty of capital and a long-term investment horizon."
Ascot is a property and casualty insurer, but it doesn't focus on consumer home and auto insurance. Instead, it underwrites policies that protect primarily against commercial risks in industries such as marine, aviation and energy. It also offers insurance for some other specialty areas such as jewellery and fine art.
"We are really buying their origination capabilities, their underwriting expertise and their underwriting discipline, which is important through pricing cycles," Mr. Selwood said.
Through the deal, the CPPIB maintains a tie to New York-based AIG, forming a strategic partnership through subsidiary reinsurance business Ascot Underwriting Bermuda Ltd.
AIG is in the process of restructuring and selling assets to return about $25-billion in capital to shareholders and become a "leaner, more focused insurance company," according to statements made by AIG chief executive officer Peter Hancock.
Earlier this year, AIG sold Advisor Group, its network of broker-dealers, to Canadian pension fund Public Sector Pension Investment Board and private equity firm Lightyear Capital LLC, for example.
The Ascot acquisition is also significant to the CPPIB because it offers a way into the 328-year-old Lloyd's of London insurance marketplace, of which Ascot is a member. Lloyd's is a network that connects companies and individuals with specialized insurance needs to a group that can underwrite that risk. There are about 97 member companies as well as individuals and groups backing policies with private capital through Lloyd's.
AIG will take $240-million in proceeds from the Ascot deal after a recapitalization by the CPPIB is completed. Part of the total announced deal value includes the capital provided to Lloyd's as a security measure that supports the underwriting business.
The Lloyd's network has been growing in recent years, opening new offices in developing markets. Canada has long been one of the largest generators of premiums at Lloyd's outside of its home British market, with policies that provide liability, commercial property and aircraft coverage, among other specialties.
Other Canadian investors have also recently been drawn to the Lloyd's market.
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. The company later said the Ontario Municipal Employees Retirement System pension fund would come in as a partner, buying a 30-per-cent stake in Brit.