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Flush with cash, Fairfax lands royal deal

Fairfax Financial Holdings Ltd. has acquired a significant springboard into the Middle East, thanks to its ability to make friends in the highest of places.

The Canadian insurer, which has been eyeing the region because of its solid economic growth and its relative lack of competition in insurance, has forged a deal that will see it go into partnership with Kuwait Projects Co., or Kipco, a heavyweight conglomerate that's half-owned by the Kuwaiti royal family.

The transaction will see Kipco sell Fairfax a 40-per-cent stake in Gulf Insurance Co. for $208.6-million (U.S.). Kipco will continue to own slightly more than 40 per cent of the company, and the remainder will be publicly held.

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"Kipco is very comfortable with us as partners in Gulf Insurance, they want us to have a significant influence," said Fairfax CEO Prem Watsa, who recently travelled to Kuwait for the first time.

About two years ago, Fairfax bought 20 per cent of Jordan's Arab Orient Insurance, of which Kipco owns 65 per cent. Executives at Fairfax and Kipco got to know one another and decided to look for other ways to work together, Mr. Watsa said.

For Kipco and its insurance holdings, the value of Fairfax's investments lie largely in the expertise the Canadian company will bring. Kipco has holdings ranging from financial services to media, technology and real estate. Al Futtooh Holding Company, an investment vehicle wholly owned by the Kuwaiti royal family, wants Kipco to be a role model for the private sector in the region.

"The beauty of the region is that insurance in that part of the world has a very low penetration," Mr. Watsa said. "The current penetration is primarily through the automobile insurance products. This will expand to houses and into more commercial areas, such as commercial buildings, factories. There's lots of petrochemical plants.

"So, we can very much help them in terms of the products that we'll bring from Canada, from the United States, from our other operations."

Fairfax will have representation on the board of Gulf Insurance Co., which was established in 1962. The consumer and commercial insurer is the largest in Kuwait, in terms of written and retained premiums, and it now has operations in countries such as Saudi Arabia, Lebanon, Egypt, Syria and Bahrain.

Fairfax has a presence in countries from Brazil to India to Poland. And Mr. Watsa said the company is still looking for international growth.

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"We continue to look for value around the world," he said. "We have about $1.5-billion in the holding company, and we're focused on companies that have a good underwriting track record, and good reserving, to combine with our investment expertise."

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