OMERS CEO Michael Latimer is seen in this file photo.Donald Weber/The Globe and Mail
The Ontario Municipal Employees Retirement System is gearing up to expand its insurance investments around the world, starting with its latest $1-billion (U.S.) deal.
The pension fund said Friday that it would take a 21-per-cent stake in Zug, Switzerland-based Allied World Assurance Co. Holdings AG, buying into the company alongside long-time investment partner Fairfax Financial Holdings Ltd.
It's OMERS' first insurance deal led by industry veteran Sharon Ludlow, who joined the pension fund as head of its insurance investments strategy in October, and has previously led Canadian operations of global insurance giants Swiss Reinsurance Co. Ltd. and Aviva PLC.
Allied World "fits squarely within what we're trying to accomplish," Ms. Ludlow said. She envisions expanding OMERS' portfolio of insurance investments around the world through "several deep relationships where we've built or invested in a variety of different insurance entities or platforms."
Ms. Ludlow is charting a bold course for OMERS, which will now have three investments in insurance companies – all alongside Fairfax. The pension fund plans to target both life insurers and property-and-casualty insurers internationally, but Ms. Ludlow sees particular opportunities in Asian life insurance businesses.
"North American and European markets are quite saturated and so have less growth opportunity," Ms. Ludlow said. "Whereas in Asia there is significant room for growth, particularly in the life insurance business. So we're sort of looking at that a little more geographically when we think about that business."
Other pension funds have also been building platforms to deepen their investments in insurance, seeing these financial institutions as a good match for their long-term investment horizons. At the same time, waves of consolidation in the property-and-casualty space have generated buying opportunities for investors.
Fairfax, led by value investor Prem Watsa, has made a string of international acquisitions in the insurance and reinsurance arena, but its $4.9-billion deal for Allied World late last year was its largest ever. Mr. Watsa called it a "transformative" transaction, at the time. On Monday, Mr. Watsa said in a statement that the deal with OMERS would give Fairfax the "flexibility to potentially buy back their interest over five to seven years' time."
OMERS was drawn to Allied World's stability and compatibility with Fairfax's other insurance businesses around the world.
"They have delivered and demonstrated strong results for all of the years that they have been in existence -- since 2001," OMERS' Ms. Ludlow said of Allied World's business. "We looked at how they fit within the Fairfax group … this is highly complementary both by product and geographically to Fairfax's existing worldwide operations. We see that as a nice fit."
OMERS also participated as a partner in the Toronto-based insurance and investments company's 2015 deal to acquire London-based Brit PLC in a deal valued at $2.3-billion (Canadian), taking a stake of about 30 per cent in the insurer. It went on to team up with Fairfax again on a smaller deal to invest in the insurance arm of Greek lender Eurobank Ergasias SA.
OMERS has also been involved in other private-equity deals with Fairfax. The pension fund sold Golf Town, the struggling golf retailer, to Fairfax and CI Investments earlier this year. OMERS is also listed as a cornerstone investor in Fairfax's upcoming initial public offering for Fairfax Africa.
"Certainly, relationship investing is important to us," Ms. Ludlow said.
The deal for Allied World is still subject to regulatory and other approvals, and Fairfax is expected to seek other co-investors in the coming weeks.
In the meantime, Ms. Ludlow wants to use her network of contacts to form more partnerships with other international investors to broaden OMERS' insurance investment base.
OMERS has "deep bench strength on the investment side, but they have not had the industry experience," said Ms. Ludlow of her new role sourcing insurance investments. "I have relationships and a network globally, and experience in both life and property-and-casualty insurance and reinsurance. So it covers the gamut of all the possible types of insurance investments that we could be looking at."