CPPIB Enters US Insurance Market with the acquisition of Wilton Re Holdings for US$1.8 Billion

US Insurance Market

There’s good news for US economy which is currently facing a slowdown. Canada Pension Plan Investment Board has shown interest in Wilton Re Holdings, a big player in the US insurance market. The CPPIB announced that it will invest US$1.8 billion for the acquisition of Wilton.

Insurance is not the core business of CPPIB. The company seems to be very much aware of this fact. Andre Bourbonnais, who is currently the senior VP of private investment said, “It’s really an acquisition vehicle for us. It’s not a traditional operating company.”

However, CPPIB’s core operating area, which is pension plan has a close link with Wilton Re Holdings as the latter is specialized in buying a certain type of life insurance that is considered as the asset class. Life insurance is an asset, saved for financial hardships. CPPIB’s pretext becomes a little wider as they are already managing pension plan assets.

Bourbonnais hinted that more acquisitions and mergers could be in the pipeline. He revealed CPPIB’s strategy, which is investing in a business or conglomeration and then fund the business. If there’s lack of equity, his advice is to merge with other companies that represent the same line of business.

There’s a reason for adopting this strategy. In Bourbonnais’ own words, “We have a fair amount of capital to invest, and a relatively limited amount of human capital” In the past, CPPIB made an investment in the agriculture industry when it procured lease contract and associated discounted cash-flow of Saskatchewan farmland.

It seems CPPIB’s modus operandi is to look out for asset classes, cash flow and efficient management. Bourbonnais regarded life insurance as something that “generates cash flow over multiple decades and they’re very well suited for a long-term investor to us.”

Insurance does ensure steady cash flow. It is also a sustainable mode of business. Mr. Bourbonnais agreed that when he said, “You can predict a life pattern much better than the market.”

The acquisition brings diversity in the table for CPP fund as some of its many investments depend on fluctuations in the stock market. Mr. Bourbonnais wanted to reduce this volatility. He said the insurer was earlier held by private equity companies like Vestar Capital Partners, Kelso & Company and Stone Point Capital. These firms wanted a quick ROI.

As there are less volatility and long-term growth in the insurance market, Wilton Re Holdings is expected to do well in future. It’s management team and CCPIB’s capital could lead to success.