Watsa’s Fairfax Financial Closes ‘Most Significant’ Deal Yet: $4.9B Allied World Acquisition

July 7, 2017 by L.S. Howard

Fairfax Financial Holdings Ltd., the Toronto-based investment and insurance company, has successfully completed its acquisition of Allied World Assurance Co. Holdings, for $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:

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.

*This story appeared previously in our sister publication Insurance Journal