Vault Insurance – a high-net-worth insurer majority-owned by Fairfax Financial’s Allied World – will be sold, a decision that has led to an initial A.M. Best ratings downgrade.

A.M. Best knocked Vault’s Financial Strength Rating to A-(Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings to “a-” from “a.” As well, the ratings agency placed Vault’s credit ratings under review with developing implications.

Private equity investor Cornell Capital and asset manager Hudson Structured Capital Management (doing its reinsurance business as HSCM Bermuda) are the buyers of Fairfax/Allied World’s majority stake in an all-cash deal that will leave Fairfax/Allied World with a 10 percent stake. Plans call for concluding the transaction by the end of the 2021 first quarter, pending regulatory approvals and other closing conditions.

Neither side disclosed financial details.

A.M. Best said the downgrade was triggered because Vault “is no longer considered a strategic investment to its current ultimate parent” Allied World.

A.M. Best noted, however, that the acquisition plans address a detailed reinsurance structure and capitalization for Vault that should be positive in the long run. Still, it has taken a cautious “wait-and-see” posture.

“The plans are expected to improve Vault’s quality of capital, financial leverage and capital flexibility, absent Allied World’s majority ownership,” A.M. Best said. “The ratings will remain under review until the transaction has closed and A.M. Best has evaluated the post-transaction details.”

Scott Carmilani, a former Allied World CEO, helped create and grow Vault, and he’ll continue to have an ownership stake and play a leadership role at Vault as Chairman of the Board. Previously, Carmilani had departed Allied World in 2019 for Fairfax in a role focused on fostering new growth initiatives. Carmilani built Allied World into a global insurer and reinsurer before Fairfax snatched it up in 2017.

Vault, launched in 2017 (with an initial rollout a year later in Florida) , is a combination of a policyholder-owned reciprocal exchange and a surplus lines company focused on serving the high-net-worth market.

Source: Fairfax, Allied World