• Category: News

FairFax Financial Holdings to Buy Brit Plc for US$1.88 Billion

Fairfax Financial Holdings Ltd, one of Canada’s largest casualty and property insurer will buy out Brit Plc for an estimated $1.88 billion and will become among the top five underwriters in the Lloyd’s London market.

FairFax Financial Holdings to Buy Brit Plc for US$1.88 Billion

Owned by Prem Watsa, FairFax will expand its specialty coverage with this acquisition. Brit plc shareholders will receive $4.30 for each share, according to a statement issued by the Canadian buyer. 

Watsa is joining a growing group of executives in the insurance industry who are looking to diversify into specialty commercial coverage.

In November 2014, RenaissanceRe Holdings Ltd got into an acquisition deal to buy out Platinum Underwriters Holdings Ltd. At the start of this year, XL Group Plc bought Catlin Group Ltd.

In a statement, Watsa said, “Brit has a great position as a leading global specialty insure, it has a disciplined approach to underwriting and a major presence in Lloyd’s.”

Lloyd’s is the oldest insurance market in the world. Businesses that are looking for coverage against large risk typically utilize this market.

Brit’s largest shareholders, CVC Capital Partner Ltd. and Apollo Global Management LLC who own up to 73 percent are in agreement with the transaction. In March 2014, these firms were among those who sold stock on Brit’s IPO to raise $240 million with shares valued at 240 pence each.

Watsa has diversified its insurance operations through acquisitions including the purchase of Zenith National Insurance Corp in California.

Brit, the latest acquisition, is valued at US$1.69 billion, has offices in Tokyo, Bermuda, Chicago and Shanghai and is largely involved in insurance coverage for the aerospace and energy industries.

Mark Cloutier, Brit’s CEO said, “There is very little crossover in our respective international operation therefore we have allowed Fairfax to diversify its portfolio.”

Watsa is popular for taking contrarian bets such as investing in Greek malls and in the Bank of Ireland in spite of the financial woes facing these countries.

He also agreed to purchase Australia’s QBE Insurance Group in Ukraine, Slovakia and Hungary to diversify in Eastern Europe.

In January, Watsa took the Indian branch of Fairfax Holdings Corp with the funds to be reinvested in export, retail, consumer-services and infrastructure in the country.

The Canadian Fairfax asserted that Brit’s impressive growth in the U.S. and internationally would be a good fit in Fairfax’s efforts to diversify its portfolio.

The acquisition of Brit Plc is good news for Fairfax’s investments per share as well as its gross revenue per share. In 2012, the Toronto-based insurer purchased Brit’s runoff business. In such a deal, an insurance company ceases to write new business and only manages the existing policies until their expiration date.

In the last quarter, Fairfax recorded its best year. In a statement, the Canadian insurer said its net income was US$23.7 million, an equivalent of 49 cents per share. This is in contrast to the $5.5 million net loss or an equivalent of 98 cents per share in the last quarter of 2013.

CEO Watsa said, “Our financial results in 2014 were our best in our 29-year history with a record $552 million in underwriting profits and net earnings.”

He also said the insurer was keeping up with its strategy to protect deflation and equity hedges, as they remain cautious of the deflationary global market.

 

Market impact

Both Fairfax and Brit investors will benefit from the cash flow that will be generated by this acquisition.

Not many people expected Brit Plc to be an attractive acquisition given the company’s financial woes since 2010. Apollo and CVC were instrumental in rescuing the struggling insurer.

Shareholders who bought Brit shares at £2.40 per share at that time will now receive £3.05 per share to sell out to Fairfax.

 
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