Fairfax Financial Holdings and its subsidiary Allied World Assurance Co. have agreed to sell their majority interests in Florida-based high-net worth insurer Vault E&S Insurance Co. to private equity investor Cornell Capital and asset manager Hudson Structured Capital Management.
Fairfax, through Allied World, will continue to own a 10% stake in Vault following the all-cash sale.
The transaction is subject to customary closing conditions. Closing is expected in the first quarter of 2021.
Founded in 2017, Vault is a combination of a policyholder-owned reciprocal insurance exchange and a surplus lines company serving the high-net worth market.
As the former CEO of Allied World, Scott Carmilani has been instrumental in Vault, and he will now become chairman of the board and continue as an owner of Vault. Carmilani had departed Allied World in 2019 for Fairfax in a role focused on fostering new growth initiatives. Carmilani built Allied World into a global insurer and reinsurer before Fairfax snatched it up in 2017.
Since initially writing business in Florida, Vault has expanded into several states including South Carolina, New Jersey, Connecticut and Pennsylvania.
The deal drew a ratings downgrade from A.M Best.
A.M. Best knocked Vault’s Financial Strength Rating to A-(Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings to “a-” from “a.” The ratings agency placed Vault’s credit ratings under review with developing implications.
A.M. Best said the downgrade was triggered because Vault “is no longer considered a strategic investment to its current ultimate parent” Allied World.
A.M. Best noted, however, that the acquisition plans address a detailed reinsurance structure and capitalization for Vault that should be positive in the long run. Still, it has taken a cautious “wait-and-see” posture.
“The plans are expected to improve Vault’s quality of capital, financial leverage and capital flexibility, absent Allied World’s majority ownership,” A.M. Best said. “The ratings will remain under review until the transaction has closed and A.M. Best has evaluated the post-transaction details.”
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