Private equity firm Onex Corp. ONEX-T is partnering with American International Group Inc. AIG-N to buy property insurer Convex Group Ltd. in a US$7-billion deal, as the Toronto-based company pivots its balance sheet toward in-demand insurance assets.
The transaction announced Thursday will also see AIG, one of the world’s largest insurance companies, acquire a 9.9-per-cent stake in Onex for US$600-million.
AIG will commit US$2-billion to Onex’s private equity and credit strategies, providing an infusion of new funds after a challenging two-year period when Onex struggled to raise money for its core buyout strategy. Since then, Onex has been in turnaround mode as chief executive officer Bobby Le Blanc has sold assets and cut costs.
Onex will acquire 63 per cent of Convex for $3.8-billion, AIG will obtain 35 per cent for US$2.1-billion, and the Convex management team will own the remaining 2 per cent of the company’s shares.
Convex is a property and casualty insurance and reinsurance business that focuses on “complex specialty risks.” It expects to write gross premiums of US$6-billion this year, compared with US$4.2-billion two years ago.
Onex was a founding investor in Convex in 2019 through the private equity firm’s fifth flagship buyout fund, with an existing US$700-million stake that Onex will roll over as part of Thursday’s transaction.
Some of the world’s largest asset managers, such as Brookfield Asset Management Ltd., Apollo Global Management Inc. and KKR & Co. Inc., have snapped up insurance businesses in recent years.
That allows them to tap into a steady new stream of fees by investing a portion of those companies’ long-term liabilities to policyholders into private assets such as infrastructure, private credit or real estate.
Mr. Le Blanc has seen that trend unfolding, and has a deep background in insurance, including a seven-year stint at Berkshire Hathaway Inc., which owns major insurers such as GEICO.
But where most large rivals have focused on life insurers that sell steady, predictable annuity products, Onex is looking to carve out a different niche in property and casualty insurance with its deal for Convex.
Property insurance can be a more risky and volatile corner of the insurance industry, especially as climate change is causing natural disasters such as floods and wildfires to occur more frequently, driving up damages and claims.
But Onex has experience in the sector, and has been closely involved as Convex executive chair Stephen Catlin and CEO Paul Brand built the company over the past six years.
The deal takes cash from Onex’s balance sheet and puts it to work, potentially creating a new stream of profits, and could channel additional money into Onex’s private equity and credit funds. Part of Convex’s investment portfolio is already allocated to funds Onex manages, “and that is expected to increase over time,” Onex said in a news release.
“Today’s announcement is a logical and foundational step forward for Onex,” Mr. Le Blanc said in a statement. “With these transactions, we are bolstering our already significant position in the insurance sector, securing the support of one of the world’s largest insurers, accelerating profitability of our asset management business and facilitating future growth in our investing capital.”
In addition to keeping its existing interest in Convex, Onex will fund the deal with US$1.5-billion in cash, US$1-billion in debt financing secured against assets in its funds, and US$600-million in proceeds from AIG’s purchase of company shares.
Onex and AIG are also planning to raise an additional US$600-million of debt through Convex.
Once the transactions are complete, Onex expects Convex to account for 42 per cent of its investing capital.