Fairfax Financial Completes $4.9 Billion Acquisition of Allied World

Fairfax Financial Holdings Ltd., the Toronto-based investment and insurance company, has successfully completed its acquisition of Allied World Assurance Co. Holdings, for US$4.9 billion – marking the company’s largest purchase yet.

Indeed, Prem Watsa, chairman and chief executive officer, has described the Allied World acquisition as Fairfax’s “most significant.”

Built by CEO Scott Carmilani since its founding in 2001 by AIG and other investors, Allied World has had an “extraordinary track record” with an average combined ratio from inception of 90.7 percent and an average return on shareholders’ equity of 12 percent, said Watsa in a March 2017 letter sent to Fairfax investors.

Allied World “writes $3.1 billion in business, and it has a major presence with the large brokers like Marsh, AON and Willis and with Fortune 1000 companies in the U.S., which is why it fits very nicely with our pre-existing businesses,” said Watsa in the investor letter.

Watsa confirmed that Allied World will continue to be run by Carmilani, in line with Fairfax’s decentralized style, “with no changes other than what he sees fit to implement.”

“We are not pursuing large cost synergies, as so many other organizations do upon merger or acquisition,” he said. “This is the beauty of the Fairfax approach: no execution risk and no disruption. Allied World will continue to be built under Scott’s vision.”

Watsa is often called the “Warren Buffett of Canada,” because he oversees an insurance conglomerate, bases his investments on their long-term value and runs his companies on a decentralized basis.

Fairfax’s other insurance holdings include Zenith National, which had a 2016 combined ratio of 79.7 percent; Fairfax Asia with a combined ratio of 86.4 percent; OdysseyRe at 88.7 percent; Northbridge at 94.9 percent; Brit at 97.9 percent, and Crum & Forster at 98.2 percent, said Watsa in his statement.

The company’s 2016 acquisitions included the following:

• Zurich Insurance Group’s South African operations, now rebranded as Bryte Insurance.
• AIG’s insurance operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey.
• Certain assets and renewal rights of AIG Europe in Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia. (Fairfax’s Central and Eastern Europe business is being written out of Luxembourg-based branch, Colonnade Insurance, which was set up in 2015 after acquiring QBE’s business in the region).
• An 80 percent interest in PT Asuransi Multi Artha Guna Tbk (AMAG), an established general insurer in Indonesia. (As part of the transaction, Fairfax entered a long-term bancassurance agreement with Panin Bank, an AMAG partner.)

In February 2017, the company announced it would pay $144 million for New Zealand insurer Tower Ltd., which Watsa said will give Fairfax a foothold in New Zealand and other countries in the region.

Related:

• Arkansas Insurance Regulators OK Allied World, Vantapro Specialty Acquisition
• Prem Watsa’s Fairfax to Pay $144M for New Zealand-Based Insurer
• Canada Pension Fund OMERS to Invest $1B in Fairfax’s Allied World Purchase
• Canada’s Fairfax to Buy Switzerland’s Allied World for $4.9B in Cash, Stock
• Canada’s Fairfax Gets Approval to Buy 51% of India’s Catholic Syrian Bank
• Watsa’s Fairfax Plans to Buy Control of Indonesia Insurer’s Non-Life Unit: Sources
• Canada’s Fairfax to Acquire London-Based Brit for $1.88 Billion