Canada Pension Plan Investment Board to acquire Wilton Re

The Canada Pension Plan Investment Board (CPPIB) has announced that it is acquiring life insurance and reinsurance firm Wilton Re alongside the Wilton Re management team.

Accessing the returns of the insurance and reinsurance market as an asset class can come in many forms and pension plans are one of the institutional investors which have learned to appreciate the insurance linked investment opportunity the most in recent years.

The Canada Pension Plan Investment Board (CPPIB), together with the management team of Wilton Re, have entered into an agreement to acquire 100% of the shares of Wilton Re Holdings Limited for $1.8 billion. The shares are being purchased from a group of investors led by insurance focused private equity specialists Stone Point Capital, as well as Kelso & Company, Vestar Capital Partners and FFL.

Wilton Re provides life insurance and reinsurance solutions to the U.S. life insurance market and also acquires closed blocks of life insurance policies. Since its launch in 2005, Wilton Re has invested over $1.7 billion in a range of in-force reinsurance and M&A transactions.

“In making a long-term investment in Wilton Re, CPPIB views the company as an ideal platform through which CPPIB can deploy significant follow-on capital at scale in the U.S. life insurance sector,” commented André Bourbonnais, Senior Vice-President, Private Investments, CPPIB. “Closed-block life insurance is an asset class with attractive risk-adjusted returns, well-suited to our long-term horizon.”

For a pension fund, an investment in closed-blocks of life insurance could provide a predictable, long-term source of investment return and yield capital. Closed-blocks are typically segregated and have been analysed to try to make the liabilities and returns as predictable and forecastable as possible. Ideal for an investor with a long-term horizon.

The long-term investment is also a good match for the longevity risk that a pension is exposed to. Typically pension plans like to gain access to long-term sources of capital which can offset some of the longevity concern.

“CPPIB ownership positions the company for growth and enhances our service offerings to clients and policyholders,” added Wilton Re Chairman and CEO, Chris Stroup. “CPPIB represents the next phase for Wilton Re – a strategic owner, committed to our business model, with a very long term investment horizon and unparalleled capital resources. Under CPPIB ownership, we anticipate the capital resources necessary to accelerate growth and expand our core In Force Solutions and middle market insurance, and enhance our competitiveness overall.”

“We are investing alongside and share a common vision with Wilton Re’s management team, led by Chris Stroup, and together we plan to invest further capital into the business to support its continued growth for many years to come. As a AAA rated long-term investor, we believe CPPIB is an ideal shareholder for Wilton Re’s employees, policyholders and client partners,” Bourbonnais stated.

This deal is interesting for two reasons. Firstlyit sees Stone Point, a seasoned investor in the reinsurance space including in reinsurance sidecars, realising capital from the sale of one of its key investments from recent years. Secondly, it sees a pension plan accessing the return of closed books of life insurance, something which is attractive to institutional investors and we may see opened to a broader segment of the capital markets in future.

This deal shows that the investment strategy of accessing the returns of the insurance and reinsurance market continues to find new followers in the pension fund space. The fact that CPPIB sees the potential for deploying ‘significant follow-on capital’ into Wilton Re to make new investments in closed-block life insurance perhaps shows that this is a sector that ILS investors with a longer-term investment horizon should be looking at more closely.

We have heard of some initiatives at ILS fund managers who have looked at how a closed-block of life business could be structured in such a way as to allow institutional investors to access the returns from it more easily.

With significant amounts of capital available to the world’s pension funds they look set to take a growing interest in insurance and reinsurance, both directly through ILS as well as through equity investments in firms like Wilton Re.

It’s also worth noting that while this is an equity investment by CPPIB, it will be able to deploy capital directly into new deals after the acquisition is complete, so accessing the returns of the closed-blocks of life business more directly.