Canadian Underwriter

Fairfax completes acquisition of Allied World

July 6, 2017   by Canadian Underwriter

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Toronto-based Fairfax Financial Holdings Ltd. has completed its acquisition of Allied World Assurance Company Holdings AG, the firms announced Thursday.

The deal was valued at nearly $5 billion when it was announced Dec. 18, 2016. All figures are in U.S. dollars.

In addition to Northbridge Insurance, Fairfax also owns OdysseyRe of Stamford, Conn. and several other insurance carriers.

“All conditions” to Fairfax’s offer to acquire Allied World “have been satisfied,” the companies stated in a press release July 6.

Zug, Switzerland-based Allied World – founded in 2001 in Bermuda – has a Toronto office. The company’s North American insurance arm – which has a total of 12 offices in Canada, the U.S. and Bermuda – covers special liability risks, including professional, environmental and directors and officers, among others.

Scott Carmilani, president, chief executive officer and chairman of Allied World, will remain in his current position, said Prem Watsa, founder, chairman and CEO of Fairfax, said during a conference call in December.

“We really do believe in a decentralized operation,” Watsa at the time. “Scott is 52 and we are hoping he is there for the next 20 years.”

Shortly after that call, A.M. Best Company Inc. said in a release that the acquisition of Allied World “is the largest by Fairfax to date.”

Related: ‘Significantly more’ than 90% of Allied World Assurance shareholders expected to tender stock for Fairfax merger

Two years ago, Fairfax acquired a majority interest in London-based Brit PLC and this past February Fairfax announced it agreed to buy Tower Limited, an Auckland-based carrier the writes insurance in New Zealand, the Cook Islands, Fiji, Papua New Guinea, Samoa and Vanuatu.

“Fairfax intends to cause Fairfax (Switzerland) GmbH (‘Fairfax Switzerland’), its indirect subsidiary, to effect a squeeze-out merger under Swiss law,” the companies said July 6. “Allied World will be merged with Fairfax Switzerland with Fairfax Switzerland being the surviving entity,” after which Fairfax Switzerland will be re-named Allied World Assurance Company Holdings, GmbH.

In addition to its North American insurance arm, Allied World also has a global insurance arm, which provides insurance in the Lloyd’s market. Allied World also writes reinsurance on both a treaty and a facultative basis and targets “several niche markets, including professional liability lines, specialty casualty, property for U.S. regional insurers, accident and health, marine, aerospace and crop risks,” Allied World said in February in its annual report for 2016. Its reinsurance customers “range from single state to nationwide insurers located in the United States as well as specialty carriers or the specialty divisions of standard lines carriers,” Allied World said. “For our non-U.S. reinsurance business, our clients include multi-national insurers, single territory insurers, niche carriers and Lloyd’s syndicates.”

Allied World placed 41st on A.M. Best’s list of top 50 global reinsurance groups in 2015, a ranking that Oldwick, N.J.-based A.M. Best releases each September. A.M. Best’s rankings were by life and non-life gross premiums. OdysseyRe ranked 26th in 2015.

“We don’t expect that there will be any problematic overlap” in reinsurance, said Andy Barnard, president and chief operating officer of the Fairfax Insurance Group, during a conference call in December, 2016. “Of course we are talking about very large companies now, and it stands to reason that on the margins there may be some, but the benefits of joining forces with Allied world far outweigh any of those issues on the margins.”

Shareholders of Allied World – which is traded on the New York Stock Exchange – will get a combination of Fairfax stock and cash.  In order to raise cash for the deal, Fairfax brought in partners including Alberta Investment Management Corporation and Ontario Municipal Employees Retirement System (OMERS).

Allied World has “good diversification” within its portfolio, between insurance and reinsurance, geographically and by product line, Sharon Ludlow, head of insurance investments strategy at OMERS, told Canadian Underwriter earlier.

Related: ‘All regulatory approvals’ received for Fairfax-Allied World merger but deal still not complete

Fairfax is contributing about $1 billion towards the acquisition and will end up owning 21% of Allied World.

The $1.88 billion acquisition by Fairfax of Brit was the sixth-largest transaction, in 2015, in which either the target or acquirer had U.S. operating property/casualty insurance subsidiaries, A.M. Best reported in 2016. Placing first through third that year were ACE Ltd.’s $28.3 billion acquisition of The Chubb Corp., Tokio Marine Holdings Inc.’s $7.5 billion acquisition of Houston Casualty Company’s corporate parent, HCC Insurance Holdings Inc., and EXOR S.p.A.’s $6.9 billion acquisition of Bermuda reinsurer and commercial insurer PartnerRe Ltd.

In addition to Brit, Fairfax also agreed in 2015 to acquire the general insurance operations, in Eastern Europe, of QBE Insurance (Europe) Ltd and a subsidiary of Fairfax completed the acquisition of the general insurance business of Malaysia-based MCIS Insurance Berhad.

Fairfax acquisitions in 2016 included: 80% of Indonesia-based PT Asuransi Multi Artha Guna Tbk (AMAG); Zurich Insurance Company South Africa Limited, now known as Bryte Insurance Company Limited, which writes property and casualty insurance South Africa and Botswana; and the local commercial and consumer insurance operations – in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey – of American International Group Inc.

Outside of insurance, Fairfax has investments in retailers such as Golf Town, Sporting Life and William Ashley China. It owns The Keg chain of steak restaurants and a slight majority of Cara Operations, whose restaurant brands include Harvey’s, Swiss Chalet, Milestone’s, Kelsey’s and East Side Mario’s, among others.

American insurers owned by Fairfax include workers compensation provider Zenith National of Woodland Hills, Calif. and Crum & Forster of Morristown, N.J.

“On the [primary] insurance side we really see a rather different profile of business” in Allied World than in Fairfax, Barnard said during a conference call in December.

“Crum and Forster is very much a specialty company,” Barnard said at the time. “Northbridge is a middle market industry focused commercial writer in Canada, one of the largest players in the Canadian commercial market.”

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