CDPQ & OTPP back Constellation with $500m to target re/insurance returns

Giant Canadian pension funds Caisse de dépôt et placement du Québec (CDPQ) and Ontario Teachers’ Pension Plan (OTPP) have together invested $500 million in Constellation Insurance Holdings, a start-up launched by the former Prosperity Life CEO Anurag Chandra.

Chandra has quite the track-record in delivering turn-around stories, having taken Prosperity Life Insurance Group from a floundering life insurer and turning it into an attractive acquisition prospect by delivering on strategic, financial and digital transformation.

In the end multi-strategy hedge fund investor Elliott Management Corporation acquired Prosperity Life, leading to Chandra stepping down as CEO this summer. He had previously been COO of insurer Allstate’s life and retirement focused unit.

Now, Chandra is returning to the market with an interesting acquisition focused proposition and backed by two of the biggest pension investors in the global insurance and reinsurance marketplace.

Constellation Insurance Holdings has been founded by Chandra, while CDPQ and OTPP have invested $500 million between them in the new venture as founding investors in the firm.

The Constellation Insurance Holdings platform will aim to invest in both property & casualty and life insurance opportunities, with a focus on helping to inject capital and expertise at the right time to propel growth, buy them out or ready them for acquisition and generally drive higher profitability.

“Constellation plans to invest in stock and mutual insurers based in North America that are seeking growth capital, stronger ratings, scale efficiencies and equity incentives while maintaining their independent management structure, brand identity, operations and entrepreneurial culture,” explained Anurag Chandra, Founder, Chairman & CEO of Constellation.

“Constellation’s target market and value proposition are differentiated versus other insurance platforms that focus on either asset accumulation, legacy block reinsurance or have shorter term investment horizons, which incentivize substantial expense reductions and limit investments in organic new business growth,” Chandra continued.

Constellation is looking to help turn ordinary insurance (and perhaps reinsurance) companies into high performers it seems, borrowing from the model Chandra successfully employed at Prosperity Life in order to help drive returns and profits for its investors.

This kind of hybrid funding, acquisition and growth promoting strategy is one increasingly being followed by large investors in market segments where there is significant change or disruption occurring, and thus the opportunities to make a big difference to the companies invested in and deliver multiples on their growth and profits.

That’s got to be very attractive to the Canadian pension investors, while insurance and reinsurance is an ideal marketplace to take this strategy to, given the opportunities to find stable, relatively profitable businesses and inject capital and innovative working practices to drive faster growth and deliver stronger returns.

As well as acquisitions and investments, demutualizations is also cited as a target area for Constellation. Taking mutual insurers private can be very lucrative, as some have incredible loyalty from their clients but at the same time they can tend to be falling behind in terms of strategy and service, meaning a fresh capital injection and focus on areas like digitalisation can deliver significant benefits.

For the major Canadian pension fund investors backing Chandra’s Constellation venture this is all about sourcing returns from the insurance and reinsurance market both appreciate investing in, with a strategy that could deliver very attractive returns if successful.

This kind of investing strategy can prove very profitable, given the turnaround potential in industries where business practices change slowly can be particularly significant.

It’s another interesting example of how large institutional investors can ally themselves with expertise to source insurance and reinsurance linked returns, albeit not an uncorrelated opportunity as we see in insurance-linked securities (ILS).

“We believe this new partnership, which allies a unique combination of expertise to a flexible investment horizon, will provide a source of competitive advantage for Constellation,” explained Stephane Etroy, Executive Vice-President and Head of Private Equity at CDPQ. “We look forward to working with insurers’ management teams to support their existing operations and to identify new avenues for growth.”

“We are delighted to partner alongside CDPQ with Anurag Chandra, who has a distinctive and successful track record in the insurance sector including acquisitions, demutualizations, turnarounds and rehabilitations. As CEO of Prosperity, he built an attractive, high growth insurance platform that generated exceptional investor returns and favorable outcomes for all key stakeholders,” added Jane Rowe, Executive Managing Director, Equities, at Ontario Teachers’. “We expect this partnership with Constellation and CDPQ to create significant value for our stakeholders.”