The disposal is the last major step in Brit Group’s restructuring under chief executive Mark Cloutier, who was brought in by the firm’s private equity owners at the end of 2011 and has aimed to make its capital work more efficiently.
Cloutier told City A.M. that the deal will enable the group to put all its resources into Brit Global Specialty, the group’s Lloyd’s of London business. “Management will be now able to focus completely on the core business of becoming a leading speciality insurer and reinsurer,” he said.
“This will release a significant chunk of capital, potentially allowing us to return some to shareholders,” he added.
Fairfax will buy Brit Insurance through its RiverStone runoff unit, which specialises in managing insurance books that are closed to new business.
The Canadian firm, led by legendary investor Prem Watsa – known as the “Warren Buffett of the North” – says that the $300m cost of buying the unit is a substantial discount on a book value of around $530m and that the deal is expected to close in the fourth quarter.
The announcement follows the sale of renewal rights on regional Brit Insurance policies to QBE in April.
Explaining the reasoning behind his restructuring of the group. Cloutier said: “We have gone from approximately 800 people at the end of 2010 in three business units and two underwriting platforms doing £1.4bn a year in gross premiums. The restructured company will have 375-400 people and the dominant business will be our Lloyd’s operation.”
“[We will have a] business trading marginally less premium on probably half the infrastructure size.”