Ontario Municipal Employees Retirement System agrees to buy minority stake in Allied World

Allied World Assurance Company Holdings AG will be 21% owned by the Ontario Municipal Employees Retirement System (OMERS) if a deal announced Friday with Fairfax Financial Holdings is approved.

Toronto-based Fairfax announced Dec. 18 a merger agreement, valued at about US$4.9 billion, with Zug, Switzerland-based Allied World, whose insurance lines in Canada include privacy breach, directors and officers, representations and warranty and energy risks.

Led by founder and CEO Prem Watsa, Fairfax also owns Northbridge Insurance, OdysseyRe and Crum & Forster, among other insurers. Non-insurance companies owned by Fairfax include Boat Rocker Media, Sporting Life and the corporate parent of the Harvey’s hamburger chain.

Fairfax said in December that if the merger with Allied World is approved, Allied World shareholders would receive a combination of Fairfax subordinate voting shares and cash equal to $US54 per Allied World Shares. Fairfax has the option to fund part of the cash portion by issuing debt or equity or by bringing in partners.

The first partner made public is OMERS, which said Friday it agreed to invest US$1 billion towards the Allied World acquisition “in order to indirectly acquire” about 21% of Allied World’s issued and outstanding shares.

“Fairfax is in ongoing discussions with several additional third parties to participate in the Allied World investment,” the firms stated Jan. 27. “Any such additional parties will be announced if and as negotiations are satisfactorily concluded.”

The agreement between Fairfax and Allied World included a “go shop” period in which Allied World could look for other buyers. During that period, which expired Jan. 18, Allied World and its representatives “actively solicited 31 potentially interested parties,” Allied World stated in a Jan. 18 release. “During such time, none of these parties executed a confidentiality agreement or otherwise expressed interest in pursuing a transaction, and no other party proposed an alternative transaction.”

Allied World has “good diversification” within its portfolio – between insurance and reinsurance, geographically and by product line, said Sharon Ludlow, head of insurance investments strategy at OMERS, in an interview Friday.

Ludlow – who has previously led both Aviva and Swiss Re in Canada – noted OMERS has previously had two transactions with Fairfax.

Fairfax owns the majority of Brit PLC, a London-based Lloyd’s insurer, while nearly a third is owned by OMERS.

“We are familiar with them as a partner,” Ludlow said of Fairfax. “We are expanding and exploring partnerships with others in the insurance sector to look for opportunities globally.”

OMERS will look for both property & casualty and life and health firms, Ludlow suggested.

“Within the property and casualty space generally we see more attractive returns in specialty insurance lines which is in the commercial space; less so in the personal lines space,” Ludlow told Canadian Underwriter. “Certainly I wouldn’t rule anything out. We are looking for attractive opportunities and companies that have consistently demonstrated the ability to perform.”

Ludlow joined OMERS in October, 2016. Before serving as president of Aviva Canada, Ludlow worked for Swiss Re as its president and CEO for Canada. She is also a former board member of the Institute for Catastrophic Loss Reduction.

Allied World, which has 11 U.S. offices, writes insurance in the Lloyd’s market through Syndicate 2232.