March 21, 2014 / 7:10 PM / in 4 years

Canada pension board buys insurer Wilton Re for $1.8 billion

TORONTO (Reuters) - The Canada Pension Plan Investment Board (CPPIB) will buy life insurance and reinsurance provider Wilton Re Holdings Ltd for $1.8 billion from a group of private equity firms, the first foray by the global dealmaker into the U.S. insurance business.

CPPIB said on Friday it will acquire Wilton Re, a leading purchaser of closed blocks of life insurance policies, from a group of private equity firms led by Stone Point Capital, Kelso & Co, Vestar Capital Partners and FFL. Closed blocks are insurance policies still in force but no longer being sold.

The acquisition, which is CPPIB’s largest direct private equity deal, highlights a big push by Canadian pension funds and other major private equity investors to invest in companies directly to cut out buyout funds as middlemen and save money on fees.

CPPIB plans to use the asset as a platform for further U.S. expansion into closed-block life insurance, which is attractive for its predictable returns, CPPIB Senior Vice President of Private Investments André Bourbonnais said in an interview.

“It generates high cash yield. It also is not correlated to the capital markets, which is important in terms of diversification for the fund. And it has relatively low volatility compared to the market. So we like it as an asset class,” he said.

“We intend to provide more capital to the platform.”

Wilton Re, based in Hamilton, Bermuda, has invested more than $1.7 billion in strategic in-force reinsurance and mergers and acquisitions since its inception in 2005.

Toronto-based CPPIB, which manages investments for Canada’s national pension fund, has net assets of C$201.5 billion ($180 billion), making it one of the biggest pension funds in the world.

CPPIB began diversifying beyond traditional financial assets such as stocks and bonds in earnest in 2006, and was sideswiped by the financial crisis in 2009.

But big global deals for real estate, infrastructure and other assets have boosted the fund’s rate of return, and it has opened offices in London, New York, and Hong Kong. In April, it will open one in Sao Paulo, Brazil.

The fund’s asset mix was 50.2 percent equities, 33.3 percent fixed income and 16.5 percent real assets at the end of 2013, with 10.9 percent in real estate and 5.6 percent in infrastructure.

Bourbonnais said asset prices have risen as the global economy has recovered.

“Clearly, I think that the market is high, both in terms of private equity and in terms of infrastructure. So (we must) find the very interesting companies where we think that there’s transactions to be made that are usually more complex (and) attract less bidders in an auction,” he said.

Debevoise & Plimpton LLP acted as CPPIB’s legal adviser on the deal.

($1=$1.12 Canadian)

Reporting by Allison Martell and Andrea Hopkins, additional reporting by Cameron French and Greg Roumeliotis; Editing by Jeffrey Benkoe, Steve Orlofsky and Peter Galloway

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