An insurance joint venture between two major Canadian pension plans is making its first acquisition, spending US$500-million to acquire an Ohio-based insurer.
Constellation Insurance Holdings Inc., owned by the Ontario Teachers’ Pension Plan and Caisse de dépôt et placement du Québec, will acquire Ohio National Mutual Holdings Inc., which sells life insurance products in 49 U.S. states. As part of the deal, Constellation will pump an extra US$500-million into the company over the next four years to add to its capital.
The US$1-billion investment in Ohio National is double the amount the two pension funds said their initial commitment to Constellation would be when they established the venture in October, 2019.
The two started Constellation to take advantage of opportunities in the insurance sector, an area many other large institutional investors have been jumping into. Pension funds are increasingly attracted to insurance companies in a low-interest rate investing environment as they offer stable returns over a long period.
For Constellation, Teachers and the Caisse turned to insurance executive Anurag Chandra to lead the company. Mr. Chandra spent five years at New York-based Prosperity Life Insurance Group before it was sold to a group of private investors in January, 2019. He previously was chief operating officer at Allstate Financial’s life insurance, retirement and voluntary benefits business in the United States.
In a statement Tuesday, Mr. Chandra referred to the pension funds’ increased long-term capital commitment and noted Constellation’s interest in acquiring insurance companies that are willing to demutualize – change from a company owned by policyholders to one owned by stockholders. He described Constellation’s strategy to provide insurers “access to long-term growth capital, enhanced ratings, scale efficiencies and aligned equity incentives, while preserving the independence, brand, existing operations and culture for which they are recognized.”
He called Ohio National “an impressive company with tremendous potential.”
Founded in 1909, Ohio National sells insurance across 49 states – all except New York – as well as the District of Columbia and Puerto Rico. It also has affiliates in South America. As of Dec. 31, it had US$41.2-billion total assets under management.
With a relatively speedy U.S. demutualization regulator process, compared with Canada, Constellation hopes to close the deal in the second half of this year.
Among other Canadian pension funds, the Ontario Municipal Employees Retirement System (OMERS) paid US$1-billion in 2017 for about 21 per cent of Allied World Assurance Co. Holdings AG, joining Fairfax Financial Holdings in its bid to acquire the insurer. The Canada Pension Plan Investment Board spent $2-billion in 2014 to buy Wilton Re Holdings Ltd., a life insurance and reinsurance company, which has made several acquisitions since.
And Brookfield Asset Management Inc. said last October it would take a minority stake in American Equity Investment Life Holding Co. for several hundred million dollars.
When Teachers and the Caisse formed Constellation in 2019, Caisse spokesman Jean-Benoît Houde explained: “The insurance industry provides stable, sustained returns over a long-term horizon. Through its resistance to economic cycles, this sector is perfectly aligned with the investment profile that CDPQ seeks.”
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David Milstead