Canada Pension Plan considers sale of Ascot & Wilton Re: Report

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The Canada Pension Plan Investment Board (CPPIB), one of the larger pension investors with a strong appetite for insurance and reinsurance market-linked returns, is reportedly looking to sell two of its larger equity stakes in the industry, by offloading specialty player Ascot Group and life and annuity reinsurance firm Wilton Re.

ascot-wilton-re-saleReuters has reported that Ascot and Wilton Re are both being put up for sale, according to its sources which it cites as people familiar with the matter.

An investment bank is said to already be shopping Wilton Re around, as the Canada Pension Plan Investment Board (CPPIB or CPP Investments) looks to offload its stake in the life and annuity reinsurance space as this market has become so competitive.

Reuters article calls the Canada Pension Plans desire to sell its insurance and reinsurance interests as a “strategic U-turn” given the pension has always had such a strong appetite for returns linked to the global insurance markets.

The report also cites “intense competition” as a driver for the sales, which is certainly true in the life and annuities space.

Wilton Re is cited at a $4 billion plus debt valuation, while no value is ascribed to Ascot Group.

CPPIB acquired Wilton Re for $1.8 billion in 2014 and Ascot for $1.1 billion in 2016.

Both of the companies should make the pension plan a reasonable profit, given how these markets have developed since it acquired the re/insurers.

Ascot has Lloyd’s, Bermuda and U.S. platforms, writing specialty classes of insurance and reinsurance business, also leveraging third-party capital from investors using its Canro Re Ltd. sidecar vehicle.

Interestingly though, the Canro Re sidecar derives most if not all of its funding via an investment vehicle owned by CPP Investments, the investment arm of the Canada Pension Plan Investment Board.

So that shows a way that the pension could retain a more direct, insurance-linked investment stake in Ascot, even should it elect to sell the company.

Reuters said there are no certainties either sale will go ahead, although its sources suggest a formal process will begin in early 2022.

The CPPIB has previously had investment stakes in number of other insurance and reinsurance players, including legacy specialist Enstar.

The pension investor has also had insurance-linked securities (ILS) allocations as well.

Does the possible sale show insurance and reinsurance as less attractive?

In the life and annuity space, where scale matters, Wilton Re is a smaller player and so it’s likely to achieve anything transformative with its investment in the company, CPPIB would need to sell to realise its profits.

But on Ascot, a carrier that has been expanding and has a strong reputation in insurance and reinsurance markets, the opportunity to continue growth in the hardening market is clear, so the reasons for a sale are less clear here.

Which again makes it perhaps more likely that CPPIB might look to realise gains made with Ascot as well, as it’s certain the company will be valued higher than it was when the pension acquired it.

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