Fairfax Financial Holdings Ltd. is selling a Singaporean insurance subsidiary in a partnership deal designed to open more growth opportunities in other pockets of the world.
The Toronto-based insurance and investments company said Wednesday that it had struck a $1.6-billion (U.S.) deal to sell a 97.7 per cent interest in First Capital Insurance Ltd. to Tokyo's Mitsui Sumitomo Insurance Co. Ltd. The transaction secures an unnamed percentage of First Capital's future revenues for Fairfax, even though it has essentially sold the business. This ensures Fairfax will continue to have a vested interest in the future success of the insurer.
It's rare that the acquisitive and long-term focused Fairfax would move to part ways with one of its portfolio companies – particularly one in a target expansion area such as Asia. But the two insurers plan to continue working together as part of the deal. Fairfax said that it had "entered into a binding agreement to pursue a global strategic alliance" with Mitsui Sumitomo. This could include jointly underwriting a variety of non-life insurance business through reinsurance partnerships. First Capital's CEO Ramaswamy Athappan will also stay in place and continue his role as chairman of Fairfax Asia.
"Mitsui Sumitomo's scale in Asia will give First Capital, under the continued leadership of Mr. Athappan, the opportunity to grow significantly," said Prem Watsa, CEO and founder of Fairfax, in a statement. "Mr. Athappan championed this transaction, based on his strong belief that it was the best way for First Capital to continue to grow successfully while also creating a valuable long-term partnership for the Fairfax group."
Fairfax put $35-million into First Capital in 2002, and has not contributed any additional capital to the business in the 15 years since. Fairfax said that it will realize a net investment gain of about $900-million after tax as a result of the deal.
First Capital specializes in South-East Asian marine insurance as well as other property, engineering and other products. Last year, the business reported gross written premiums of $393.3-million. Joining with Mitsui Sumitomo appealed to Fairfax in particular because it is a subsidiary of MS&AD Insurance Group Holdings Inc., a Japanese insurance giant with holdings across the globe – both in markets where Fairfax has established a presence and in new markets such as Australasia, Russia and pockets of Western Europe. MS&AD has roots in Japan that date back more than 300 years and is among the largest non-life insurance companies in the country.
Mitsui Sumitomo was formed by a merger of two Japanese insurers in 2001 and has since been active in expanding into new markets, particularly in Asia. In the last few years alone, the company made its first foray into Sri Lanka, Indonesia and the life insurance business in India and China. Many of these expansions were made through investments in existing insurance businesses.
"Mitsui Sumitomo and Fairfax share the same long-term vision and values," said Masahiro Matsumoto, senior executive officer of Mitsui Sumitomo, in a statement. "We look forward to building our partnership with Fairfax to expand on our complementary global strengths."
Along with extensive investments throughout India, Fairfax also considers Asia to be a region of key focus in the coming years and it already has a variety of holdings in countries such as China Malaysia, Vietnam and beyond.
The deal is subject to regulatory approvals in several markets and is expected to close late this year, or early in 2018.