Private equity firm Cinven and British Columbia Investment Management Corporation (BCI) have reached an agreement to purchase legacy acquirer, Compre, from existing shareholders CBPE Capital LLP, Hudson Structured Management Limited, and Compre’s management.
Following the transaction, Cinven and BCI will become majority shareholders alongside Compre’s management team, led by Chief Executive Officer (CEO) Will Bridger, and will provide the additional capital needed to meet the company’s ambitious growth plans.
Under the ownership of CBPE, Compre completed 21 transactions in 10 jurisdictions, including its first in the U.S., which ultimately enabled it to establish its Bermuda legacy platform.
Commenting on the deal with Cinven and BCI, Bridger said: “I am delighted to announce that Compre will be working with Cinven and BCI as our new majority shareholders to realise our ambitious plans for the future. Compre has a long history in the legacy market built on a client-centric approach that sets us apart. Our reputation for providing bespoke solutions to our clients and for delivering shareholder value has enabled us to establish a company with tremendous potential that I am privileged to lead. My thanks to the CBPE team for their support since 2015.
“In Cinven and BCI, we have partners that share our values and ethos, and our approach to achieving sustainable growth over the long-term. I very much look forward to working with them and leading Compre in what promises to be an exciting time for our business.”
As the global non-life insurance run-off market continues to grow at a steady pace, Cinven and BCI, one of Canada’s largest institutional investors, believe that Compre is an attractive investment opportunity based on the firm’s high-quality, cash and capital-generative business model; and its strong and established market position in Europe and, more recently, its expanding market position in the U.S., with further plans to enter the Lloyd’s market in the future.
Cinven and BCI also highlights the legacy acquirer’s track record of acquiring and managing non-life legacy business over more than three decades; its proven financial track record of steady and consistent growth in recent years; the huge opportunity to capitalise on the growing demand for legacy solutions; and an exceptional management and leadership team.
Cinven Fund’s previous investments in the European insurance segment include Guardian Financial Services in the UK; Eurovita in Italy; and Viridium in Germany.
Earlier this month, Cinven announced an agreement to acquire insurance brokerage, Miller.
Partner of Cinven, Luigi Sbrozzi, commented: “Cinven is delighted to be investing in Compre alongside BCI. Over the last 30 years Compre has built a proven platform in the highly specialised insurance and reinsurance run-off market, and a reputation amongst its clients for consistently creating and realising value. Compre is extremely well placed to access new growth markets, such as the US and Lloyd’s, and to broaden its client offering further. We look forward to working with Compre’s management team to deliver these growth opportunities, drawing on the deep expertise of the Cinven team in the insurance sector.”
BCI has previously made numerous investments in financial services firms, including Hayfin Capital Management, Verifone, and BMS Group.
Jim Pittman, Executive Vice President & Global Head, Private Equity, BCI, said: “We are impressed by the quality of the platform built by Will Bridger and his team and are excited to partner alongside Cinven to support the continued growth of the business. BCI’s investment in Compre follows as a result of our proactive, sector focused origination strategy and relationship building efforts with the company. We look forward to supporting Compre in its development and in turn providing attractive and stable long-term risk-adjusted returns for our pension plan and insurance fund clients.”
Bridger added: “This has been a historic year for Compre. We completed our first US transaction, launched our Bermudian reinsurer and now, subject to regulatory approval, have new shareholders supporting further growth of the business. This was made possible through the commitment of everyone at Compre and our drive and determination for what we do. The legacy market is on an exciting trajectory and, together with our new shareholders, we will be best placed to deliver the ambitious plan we have for Compre.”
Financial details of the deal have not been disclosed, with the transaction expected to close in the second-quarter of next year, subject to regulatory approvals.
BCI put out a press release earlier today announcing the transaction:
Cinven, an international private equity firm, and British Columbia Investment Management Corporation (“BCI”), one of Canada’s largest institutional investors, today announce that they have reached an agreement to acquire Compre, a specialist global consolidator of closed books of non-life insurance policies, from CBPE Capital LLP. Financial details of the transaction are not disclosed.
Compre is focused on the acquisition and management of discontinued (also known as ‘run-off’) non-life insurance portfolios and has operations in the UK, Bermuda, Finland, Germany, Malta and Switzerland. The global non-life insurance run-off market is growing steadily, driven by insurers’ increasing focus on balance sheet optimisation, capital efficiency and disposals of non-core business lines. Compre has a proven track record of acquiring portfolios from major institutions including Allianz, Generali, HSBC and Swiss Re. Founded in 1991, Compre employs c. 80 people at its offices in the UK, Continental Europe, and Bermuda.
Cinven and BCI believe that Compre is an attractive investment opportunity based on:
- Compre’s high-quality, cash and capital-generative business model, that delivers highly predictable long-term profits, with significant downside protection;
- Its strong and established market position in the European non-life insurance legacy market and, more recently, its growing market position in the US market through its Bermuda platform, with further ambitions to enter the Lloyd’s market going forward;
- Its track record of acquiring and managing non-life legacy businesses over more than 30 years, comprising 11 company acquisitions and 39 portfolio transactions across various jurisdictions across Continental Europe, the UK and the US;
- Its proven financial track record of steady and consistent growth in recent years, delivering robust performance through the COVID-19 pandemic and prior downturns;
- The significant opportunity to capitalise on the increasing demand for legacy solutions and offer its products to a broader range of international clients; and
- An exceptional management and leadership team, led by CEO, Will Bridger, with significant expertise across its specialist areas.
The Compre transaction represents the second investment from Cinven’s new financial services sector-focused strategy, which will be focused on similar long-term investment opportunities across Europe.
Cinven Funds’ previous investments in the European insurance sector include Guardian Financial Services in the UK; Eurovita in Italy; and Viridium in Germany. Cinven recently announced an agreement to acquire Miller, a specialist insurance broker. Other financial services investments by the Cinven Funds include Partnership Assurance, NewDay, Avolon and Premium Credit.
BCI has made a number of investments in financial services companies, including Hayfin Capital Management, Verifone, and BMS Group.
Luigi Sbrozzi, Partner of Cinven, commented:
“Cinven is delighted to be investing in Compre alongside BCI. Over the last 30 years Compre has built a proven platform in the highly specialised insurance and reinsurance run-off market, and a reputation amongst its clients for consistently creating and realising value. Compre is extremely well placed to access new growth markets, such as the US and Lloyd’s, and to broaden its client offering further. We look forward to working with Compre’s management team to deliver these growth opportunities, drawing on the deep expertise of the Cinven team in the insurance sector.”
Jim Pittman, Executive Vice President & Global Head, Private Equity, BCI, said:
“We are impressed by the quality of the platform built by Will Bridger and his team and are excited to partner alongside Cinven to support the continued growth of the business. BCI’s investment in Compre follows as a result of our proactive, sector focused origination strategy and relationship building efforts with the company. We look forward to supporting Compre in its development and in turn providing attractive and stable long-term risk-adjusted returns for our pension plan and insurance fund clients.”
Will Bridger, CEO, Compre, added:
“We are also delighted to be partnering with Cinven and BCI as we embark upon our next phase of growth. This has been a historic year for Compre. We completed our first US transaction, launched our Bermudian reinsurer and now, subject to regulatory approval, have new shareholders supporting further growth of the business. This was made possible through the commitment of everyone at Compre and our drive and determination for what we do. The legacy market is on an exciting trajectory and, together with our new shareholders, we will be best placed to deliver the ambitious plan we have for Compre.”
The transaction is expected to complete in Q2 2021 and is subject to regulatory approvals.
Cinven and BCI advisors included: Macquarie Capital (M&A); Allen & Overy and Latham & Watkins (Legal); PwC (Commercial, Financial, Actuarial, Operations, IT); FTI Consulting (Actuarial, Operations, IT, Communications); Deloitte (Tax, Structuring) and Marsh (Insurance).
Management advisers were Liberty Corporate Finance (Financial Advisor) and DLA Piper (Legal and Tax).
About Cinven
Cinven is a leading international private equity firm focused on building world-class global and European companies. Its funds invest in six key sectors: Business Services, Consumer, Financial Services, Healthcare, Industrials and Technology, Media and Telecommunications (TMT). Cinven has offices in London, New York, Frankfurt, Paris, Milan, Madrid, Guernsey, Luxembourg and Hong Kong.
Cinven takes a responsible approach towards its portfolio companies, their employees, suppliers, local communities, the environment and society.
Cinven Capital Management (V) General Partner Limited, Cinven Capital Management (VI) General Partner Limited, Cinven Capital Management (VII) General Partner Limited and Cinven Capital Management (SFF) General Partner Limited are each authorised and regulated by the Guernsey Financial Services Commission, and Cinven Partners LLP, the advisor to the Cinven Funds, is authorised and regulated by the Financial Conduct Authority.
In this press release ‘Cinven’ means, depending on the context, any of or collectively, Cinven Holdings Guernsey Limited, Cinven Partnership LLP, Cinven (LuxCo1) S.A., and their respective Associates (as defined in the Companies Act 2006) and/or funds managed or advised by any of the foregoing.
For additional information on Cinven please visit www.cinven.com and www.linkedin.com/company/cinven/
About BCI
With C$171.3 billion of assets under management as of March 31, 2020, British Columbia Investment Management Corporation (BCI) is one of Canada’s largest institutional investors. Based in Victoria, British Columbia, BCI is a long-term investor that invests across a range of asset classes: fixed income; public equities; private equity; infrastructure; renewable resources; real estate; and commercial mortgages. BCI’s clients include public sector pension plans, insurance, and special purpose funds.
BCI’s private equity program, with C$17.9 billion of assets under management, is a well-diversified portfolio comprised of direct and fund investments. The team brings industry expertise with more than 30 investment professionals investing across financial and business services, healthcare, industrials, consumer, and TMT sectors.
For more information about BCI, please visit www.bci.ca.
About Compre
Compre is a leading legacy specialist with over 30 years of experience in the acquisition and management of discontinued and legacy non-life insurance and reinsurance business. We have experience of acquiring most classes of direct and reinsurance business, including general liability, marine and motor liability, and US APH. Compre has operations in Finland, Germany, Malta, Switzerland, Bermuda and the UK.
Our track record includes the acquisition of companies in run-off, transfers of legacy business portfolios, the provision of reinsurance solutions and the subsequent management and closure of run-off liabilities. Solutions are tailored to meet the specific requirements of the vendor in relation to their legacy portfolios and cover economic, legal and administrative finality.
Compre is independent and privately owned. It is managed by its Executive Directors: Will Bridger, CEO; Mark Lawson, Group Actuarial Director; Dr Hubertus Labes, Managing Director – Germany and Austria; Simon Hawkins, COO, Eleni Iacovides, Chief Development Officer and Ian Patrick, Group CFO (subject to regulatory approval).
This is a great deal for all three parties, BCI, Cinven and Compre.
By investing alongside Cinven, one of the best European private equity firms, BCI got access to this deal.
The deal doesn't surprise industry experts. Back in September, Charlie Wood of Reinsurance News reported that Compre was eyeing capital raise off COVID-19 and the market hardening:
Leading specialist legacy acquirer Compre is looking to raise additional capital in the face of increased legacy activity related to the COVID-19 pandemic and hardening insurance market.
Compre says its current shareholders, private-equity firm CBPE Capital, remain committed to the business and support its management team’s outlook.
The existing team, led by CEO Will Bridger, will remain unchanged and is committed to the growth of the business.
“Now is the time to invest in the legacy market and it gives me great pleasure to be taking this step in our company’s history at such a promising time for legacy acquirers,” said Bridger.
“Legacy has matured through the years and has become a vital part of the industry’s infrastructure.
“The demand for our solutions has surpassed expectations and Compre is committed to providing bespoke structuring to enable clients to reach their business objectives during this challenging period and beyond.”
Keep in mind, CBPE Capital acquired Compre back in October 2015 for an undisclosed amount. Over the last five years, it provided significant capital to Compre for the acquisition of European insurance carriers and the transfer of legacy portfolios.
So why did CBPE Capital sell its stake to Cinven and BCI? Private equity firms typically sell their stake after three, four or five years to realize gains and raise their next fund.
Also, there's no doubt the offer was right and there are better alignment of interests between BCI, Cinven and Compre which is looking to capitalize on increased demand for its solutions, providing bespoke structuring to clients.
In fact, Will Bridger, CEO, Compre, stated fat out:“We are also delighted to be partnering with Cinven and BCI as we embark upon our next phase of growth. The legacy market is on an exciting trajectory and, together with our new shareholders, we will be best placed to deliver the ambitious plan we have for Compre.”
And Jim Pittman, Executive Vice President & Global Head, Private Equity at BCI, explains why they backed this deal:
“We are impressed by the quality of the platform built by Will Bridger and his team and are excited to partner alongside Cinven to support the continued growth of the business. BCI’s investment in Compre follows as a result of our proactive, sector focused origination strategy and relationship building efforts with the company. We look forward to supporting Compre in its development and in turn providing attractive and stable long-term risk-adjusted returns for our pension plan and insurance fund clients.”
Go that? The name of the game is attractive and stable long-term risk-adjusted returns and the insurance industry is ripe for major dislocation/ consolidation and transformation.
Recall, I recently discussed why CDPQ, CPP Investments and Ontario Teachers’ are helping Intact Financial Corp. to finance its conditional acquisition offer for RSA Insurance Group.
I also recently discussed why PSP Investments is dipping into insurance-linked-securities.
Why do Canada's mighty pensions love insurance deals? Because they offer stable and attractive cash flows over th elong run and in a world of record low rates, they did to diversify away from bonds to find suitable investments that offer competitive risk-adjusted returns over the long run.
And insurance deals offer attractive and stable yields over the long run but at higher risk than bonds. Still, if yields back up and eventually normalize, insurers will reap huge gains in the future.
Interestingly, a week ago, CDPQ announced it was part of a consortium that helped lauched Inigo, a new insurance group:
Inigo Limited (Inigo), a new insurance group, announces that it has successfully completed a capital raise of approximately $800 million from a consortium of global investors comprising (amongst others) funds controlled by Caisse de dépôt et placement du Québec (CDPQ), Enstar, J.C. Flowers & Co., Oak Hill Advisors, Qatar Investment Authority, Stone Point and Inigo’s management team. The funds give Inigo the capital base required to proceed with its plans to open for business in the 2021 year of account, subject to approvals from the Corporation of Lloyd’s.
Inigo is being founded by Richard Watson, former Chief Underwriting Officer of Hiscox who stepped down from the group last year after 33 years, along with Russell Merrett, former Managing Director of Hiscox London Market, and Stuart Bridges, former Chief Financial Officer of both Hiscox and ICAP.
Sir Howard Davies, Chairman of NatWest Group, has been appointed as Chairman. Sir Howard has a distinguished career in the City, business and government; he was Chairman of the Financial Services Authority from 1997 until 2003, Director of the London School of Economics from 2003 until 2011, and Chairman of Phoenix Group from 2012 until 2015.
As part of its preparations, Inigo also announces that it has signed an agreement to acquire certain insurance underwriting assets of StarStone Underwriting Ltd including its Lloyd’s Syndicate 1301 and its managing agency, from Enstar Group, subject to regulatory approvals. These are intended to form the foundation for Inigo’s operations as a specialty insurer, writing a streamlined portfolio of insurance and reinsurance risks. No legacy underwriting will be transferred to Inigo.
Inigo believes that current conditions are ideal to launch a new insurance business, at a time when demand across a number of classes of insurance and reinsurance is high. Inigo has chosen London as its principal base since it regards the overall insurance ecosystem offered by Lloyd’s as exceptionally attractive and believes it will best support the growth and development of the new syndicate.
Richard Watson said:“This significant capital raising, together with our acquisition, gives us the platform we need to turn Inigo from a concept into reality. We believe that 2021 will mark the beginning of an exciting growth phase for Lloyd’s and the London Insurance Market and Inigo will contribute to growing the specialty and reinsurance marketplace, as it returns to profitability. Sir Howard Davies joining our board validates our vision for Inigo and our determination to provide credible additional capacity and services to customers and brokers.
We are fully supportive of the direction that John Neal, Lloyd’s CEO, is taking the market, making it a more attractive and efficient place in which to trade. For a company like ours, entirely focused on underwriting, London also has the depth of young talent we need to develop the analytical and data-led approach that is at the core of what we hope to do.”
Inigo was advised on the transaction by Evercore, Guy Carpenter Securities and Clifford Chance.
Got it? Inigo believes that current conditions are ideal to launch a new insurance business, at a time when demand across a number of classes of insurance and reinsurance is high.
Are Canada's mighty pensions investing in insurance deals because they think rates are too low and are bound to normalize over the next decade?
No doubt, that factors into their decision but as I stated above, the insurance industry is on the cusp of major transformation and you need to partner up with the right partners to gain access to the right deals.
It's been a few years now that VCs have been betting in the coming years, we’ll see major shifts in both how we buy insurance and what types of items we insure with it.
In Q1 2019, the insurance broker sub-sector in North America recorded the highest merger & acquisition (M&A) deal volume in the wider insurance industry, led by private equity:
“PE tends to be a short- to medium-term investor,” said John Marra, US insurance deals leader, PwC. “They could buy a brokerage for $5 million, and that purchase might represent a 5X free cashflow or EBIT (earnings before interest and taxes). They could finance 30-60% of that, then grow the business and sell it for $10 million three years down the road, at a higher multiple than they paid the previous owner of brokerage.”
PE investors typically approach the brokerage space with the idea of introducing efficiencies and rolling up different properties. They’re also looking for financial arbitrage between borrowing big financial leverage on the transaction and then getting the brokerage owner to accept less than the 8-10X multiple that the overall property would be worth, Marra explained. The owner might accept a 5X free cashflow, with the incentive that if they help grow the brokerage value from $5 million to $10 million, they can eventually walk away with more money.
“The thing that has become very attractive about the brokerage space to PE is that it’s a free cashflow business, it’s not capital intensive, and it’s must less regulated than the carrier sub-sector. They can also get quite a lot of financial leverage as the lenders are willing to finance the deals for all the same reasons,” Marra told Insurance Business.“PE will often invest in a brokerage and then they’ll find a very experienced leader to come in and help run the business. They will work with management teams to introduce new incentives and help them execute new business plans and growth strategies.
“I don’t think PE necessarily sees brokerage as a big growth engine because the insurable base in North America is not necessarily growing. It is somewhat growing with new products, but not necessarily increased premium. They’re currently playing more in the brokerage space because of the potential for arbitrage and because they can consolidate. They can pick up many different brokerages, flip them around and increase their value, and then sell them on. That’s what their strategy has been, and they’ve done very well.”
I think PE and big Canadian pensions are looking at all segments of insurance, including brokerage.
Anyway, I like these deals and think they will prove very profitable over the long run, providing these pensions with stable cash flow.
Before I end this comment, a few related items.
First, last week, I went over whether BCI's governance is a ticking time bomb and it was brought to my attention that two years ago, Claude Marchessault praised the governance at B.C.'s public pensions in Benefits Canada, stating this:
While retirement income security is top of mind for many Canadians, British Columbia’s public sector pension plans are noteworthy models that can be emulated by sponsors seeking plan design solutions, particularly when it comes to governance.
Some other Canadian jurisdictions have introduced, or are in the process of developing, pension governance models similar to British Columbia, but none is as comprehensive and applicable to all public sector pension plans. For example, while the Alberta Pension Services Corp. and the Alberta Investment Management Corp. manage and invest for the province’s public sector plans, those plans aren’t jointly sponsored and the Alberta government still plays a major role in their management.
So why the change of heart? Also, while Mr. Marchessault questions the Gordon Fyfe's dual role of CEO/ CIO at BCI, I was also told Mr. Fyfe runs every major investment decision through his senior managers (but he has the final say).
What else? CDPQ's Réseau express métropolitain (REM) has hit a few snags lately but you'll have to wait till tomorrow to find out all about that, this comment is done!
Below, Paul Schiavone, Global Industry Solution Director of Financial Institutions, invites you to join AGCS along with panelists from KKR and AON for a 1 hour informal discussion among customers, brokers, and insurers focusing on leveraging insurance to drive value. You can register here to watch this webinar. Take the time to watch it.