Fairfax Financial Holdings Ltd. and OMERS, the pension plan for Ontario’s municipal employees, announced they have entered into an agreement where OMERS will acquire a 40 percent interest in Fairfax’s UK runoff group, RiverStone UK.

The transaction remains subject to regulatory approval and is expected to close in the first quarter of 2020.

With the deal, RiverStone UK gains the joint operational expertise of Fairfax and OMERS, while enabling Fairfax to focus on premium growth in the ongoing insurance and reinsurance businesses. The investment also provides RiverStone UK with additional flexibility to raise capital at historically low rates in Europe in order to be able to opportunistically pursue UK runoff transactions.

The cash purchase price for the RiverStone UK investment of at least $560 million, subject to certain book value adjustments at closing, will result in Fairfax recording a gain of approximately $280 million before tax (an increase in book value per basic share of Fairfax of approximately $10 before tax on a pro forma basis).

Luke Tanzer will remain CEO of RiverStone UK post-closing.

“We welcome OMERS’ investment in RiverStone UK and the opportunity it brings to continue to offer the most trusted and effective runoff solutions in the insurance market,” said Luke Tanzer, CEO of RiverStone UK.

“When Nick Bentley and Luke Tanzer expressed their desire to take steps to bring partners into the U.K. runoff business, OMERS was the natural choice given our past successes together,” said Prem Watsa, chairman and CEO of Fairfax, the Toronto-based financial holding company. “OMERS’ investment and their ability to work jointly with Luke and his team will provide RiverStone UK with the opportunity to prudently leverage the business and pursue opportunistic transactions.”

“The acquisition of RiverStone UK advances our strategy to make investments that can generate sustainable, stable income and growth,” said Ken Miner, executive vice president and global head of OMERS Capital Markets. “We are excited to work with Fairfax to maximize the value of this asset for our members.” (Founded in 1962, OMERS is one of Canada’s largest defined benefit pension plans, with more than $97 billion in net assets as of Dec. 31, 2018.)

Upon completion of the transaction, Fairfax will deconsolidate the U.K. runoff group and apply the equity method of accounting for its remaining interest. Fairfax may further monetize its remaining interest in U.K. runoff in the future although the company also retains the flexibility to repurchase its interest over time.

Source: Fairfax and OMERS

*This story ran previously in our sister publication Insurance Journal