Fairfax Financial acquires 7.5% equity stake in Africa Re for $61m

Fairfax Financial Holdings, a top global investor, has acquired a 7.5 percent equity stake in Africa Reinsurance Corporation (Africa Re) for $61 million, marking the second investor coming into reinsurance firm in two months.

The new strategic partnership with Fairfax, after the recent entry of AXA in February 2015, has strengthened Africa Re with a $122 million capital. It is also a clear strategic move intended to achieve strong business partnerships with global industry players. This investment also offers Fairfax a seat on the board of Africa Re.

Fairfax, a Toronto-based holding and group of insurance and reinsurance companies with subsidiaries around the globe, is engaged in property and casualty insurance, reinsurance, and investment management.

Talking about what Fairfax will bring to Africa Re, Corneille Karekezi, group managing director/CEO, Africa Re, said: “We will work together to strengthen our positions in the reinsurance market with regard to product development, underwriting expertise, human capacity development, actuarial services, enterprise risk management, corporate governance, claims management and investment.”

Karekezi said that it was “a great development for Africa Re, demonstrating the maturity of the company, its commitment and ability to strategically position itself in the fast changing and competitive landscape of the international reinsurance industry.”

The shareholding structure of Africa Re changed over time from a pure multilateral institution in the 1970s and 1980s to a diversified shareholding comprising 41 African states (34%), over 100 African insurance and reinsurance companies (33%), the African Development Bank (8%), IRB-Brasil Re, a leading Brazilian reinsurer (8%), AXA, the global leading French insurer that joined recently with a 7.15 percent stake, and Proparco, a branch of the Agence Française de Development.

Until recently, development finance institutions (DFIs) such as the International Finance Corporation (IFC), member of the World Bank Group, DEG (branch of the KfW bank) and FMO (Dutch development finance organisation) constituted the core of the non-African shareholding capped at 25 percent of the capital of Africa Re.

Fairfax has acquired part of the shares put back by those DFIs that invested in Africa Re capital in 2004, and are exiting in accordance with a put option agreement allowing them to exit after the elapse of their investment horizon.

Following a recommendation of the African Development Bank (AfDB), the Africa Re was established on February 24, 1976, in Yaoundé, Cameroon.

An international agreement was signed by the Plenipotentiaries of 36 member states of the Organisation of African Unity (OAU) and the AfDB with the aim of reducing the outflow of foreign exchange from the continent by retaining a substantial proportion of the reinsurance premiums generated therein.

That agreement, known and referred to as the Agreement Establishing the African Reinsurance Corporation, confers on Africa Re its current status as well as the legal authority to operate. As of today, Africa Re has 41 member states representing 38.75 percent of the capital (end 2010) in addition to the AfDB, which is among the single largest shareholders with 8 percent of the capital (end 2010).

The agreement also empowers any member state to authorise a national institution, either a bank or an insurance company acting on its behalf, to purchase the shares reserved for the state.

In order to allow its cedants to share the corporation’s fortune and participate more closely in its affairs, one-third of Africa Re’s capital was opened up in 1992 to insurance companies with a majority indigenous shareholding.

A good number of the companies have already subscribed and paid up for the shares allotted to them. To date, more than 100 insurance and reinsurance companies are shareholders of Africa Re with a 32.25 percent combined stake (end 2010).

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