OMERS pension fund bets on run-off, taking 40% stake in RiverStone

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The Ontario Municipal Employees Retirement System (OMERS), one of Canada’s largest pension funds, has again demonstrated its liking for insurance and reinsurance linked returns, by taking a 40% stake in run-off and legacy specialist firm RiverStone UK.

omers-logoThe acquisition sees OMERS working closely with Prem Watsa’s Fairfax Financial again, as Fairfax was sole owner of RiverStone UK and has sold the 40% stake in the UK run-off group to the pension.

Previously, OMERS and Fairfax worked together when the Canadian pension fund invested alongside the firm when it acquired Allied World in 2017.

OMERS is acquiring the 40% stake in RiverStone UK for a cash purchase price of at least US $560 million, subject to valuation at closing.

As a result, Fairfax will record a gain of approximately US $280 million before tax, which translates to a pro forma and pre-tax increase in book value per basic share of Fairfax of approximately US $10.

With this transaction, RiverStone UK will benefit from the joint operational expertise of Fairfax and OMERS as well as the flexibility to raise inexpensive capital, which is incredibly important in the run-off insurance and reinsurance market today.

Transactions in the run-off and legacy space have been getting bigger and firms without the fire-power to bid are often excluded from what can be some of the most appealing deals in the space.

Fairfax can now focus on significant premium growth in its ongoing insurance and reinsurance businesses, with cash now available to dedicate to this.

RiverStone UK will benefit from additional capital flexibility, which the company says will position it to able to raise funding at historically low rates in Europe in order to opportunistically pursue UK run-off transactions.

Luke Tanzer will remain in his position as CEO of RiverStone UK post-closing.

“We welcome OMERS’ investment in RiverStone UK and the opportunity it brings to continue to offer the most trusted and effective run-off solutions in the insurance market,” Tanzer explained.

“When Nick Bentley and Luke Tanzer expressed their desire to take steps to bring partners into the UK run-off business, OMERS was the natural choice given our past successes together,” added Prem Watsa, Chairman and CEO of Fairfax. “OMERS’ investment and their ability to work jointly with Luke and his team will provide RiverStone UK with the opportunity to prudently leverage the business and pursue opportunistic transactions.”

“The acquisition of RiverStone UK advances our strategy to make investments that can generate sustainable, stable income and growth,” Ken Miner, Executive Vice President and Global Head of OMERS Capital Markets also said. “We are excited to work with Fairfax to maximize the value of this asset for our members.”

The acquisition is subject to regulatory approval and is expected to close in the first quarter of 2020.

OMERS continues to display its appetite for investing in the reinsurance sector with this deal, an appetite held by so many of the world’s largest pension funds.

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