According to DBRS Morningstar, which has rated Fairfax BBB( high ) with a positive trend, the ratings of Toronto-based Fairfair Financial Holdings Ltd. are unaffected by last week's's announcement that it has entered into an irrevocable agreement to acquire an additional 46.32 % of Gulf Insurance Group ( GIG ) from Kuwait Projects Co.( KIPCO ).
With this deal, Fairfax will gain full control of GIG and increase its ownership stake from 43.69 % to 90.01 %.
According to the terms of the agreement, Fairfax did earn KIPCO's's stocks in GIG in Kuwaiti Dinar at the special, amounting to about US$ 860 million. Any earnings that KIPCO buyers receive after January 1, 2023 may reduce the purchase price.
Following the transaction's's settlement, KIPCO will returning to Fairfax the full purchase price, less a sum of Kuwaiti Dinar relative to$ 200 million, as well as cash payment for all income that the buyers of the company received from GIG after January 1, 2023. The transaction contract will then be delivered by Fairfax, ordering it to pay KIPCO four equal monthly payments of$ 165 million starting on the transaction's's first anniversary.
We believe that the terms of the contract are favorable for Fairfax. According to the DBRS Morningstar ratings agency, the acquisition cost will be quickly absorbed with little effect on Fairfax's's wealth through current liquidity.
Although GIG does have some local mortgage that will be consolidated on Fairfax's's balance strip once the deal is completed, the transaction is not anticipated to have a real impact on leverage.
We anticipate that the good results reported so far by GIG may continue because Fairfax has owned a significant portion of the company since 2010 and has had an effective partnership with KIPCO, according to DBRS. Given its history of similar foreign acquisitions and recent presence in the area, we believe that Toronto-based Fairfax can manage the operating and integration risks associated with having a significant presence within an international regulatory environment.
AM Best stated in a separate ratings announcement for Gulf Insurance Group that the company's's Financial Strength Rating of A( Excellent ) and the Long - Term Issuer Credit Rating, both of which are unchanged and have an optimistic outlook. According to AM Best, the deal is not expected to alter GIG's's credit rating or business system.
According to DBRS, which manages its many major insurance subsidiaries, we anticipate Fairfax may manage the acquired company as a stand-alone entity, giving it varying degrees of independence.
Despite exposures to increased functional and geopolitical risks, DBRS noted that Fairfax will benefit from the acquisition.
According to DBRS, the acquisition will give Fairfax a dominant position in the Middle East and North Africa Region( MENA ).
According to DBRS, GIG was founded in 1962 and is a publicly traded company that is listed on the Kuwait property exchange. Based on rates written, it is currently one of the biggest and most diverse insurance organizations in the MENA region.
Propertycasualty and life insurance products are both available from GIG. Health insurance does, though, account for 49.1 % of rates in 2022, according to DBRS. The dependence of GIGs on the health insurance industry and the concentration risk would be reduced if the premium generated by lines of business were further diversified.
Prem Watsa, chairman and CEO of Fairfax, expressed his excitement about expanding our equity stake in GIG. With services in 13 different nations and a market-leading position in each of Kuwait, Jordan, Bahrain, and Egypt, GIG is one of the biggest and most diverse insurance organizations in the Middle East and North Africa region.
Since Fairfax's's initial expense in GIG in 2010, it has delivered outstanding gains over the long term. Khaled Saoud Al Hasan is in charge of a skilled and experienced management company. Watsa added," We are grateful to our colleagues at KIPCO for giving us this chance to grow our security services in the rapidly expanding Middle East and North Africa market."
According to Khaled Saoud al Hasan, group CEO of GIG, Fairfax is demonstrating its long-term commitment to the GCC markets and the group, which recently reported a net profit of$ 124.7 million for the fiscal year 2022. We will keep using our distributed operating model, which enables all companies to operate independently while gaining from Fairfax's's social expertise and knowledge in more than 40 markets worldwide. We will collaborate directly with each of the GIG Group entities' regulators in the upcoming months to make this transaction flawless and advantageous for all parties.
