Canadian private equity firm Mount Logan Capital has entered into a non-binding agreement to acquire Ability Insurance Company, an Omaha, Nebraska-based insurer and reinsurer of long-term care policies. The purchase price is $20 million. The seller is Advantage Capital Holdings.
Mount Logan Capital Inc. Announces Agreement to Acquire Ability Insurance Company
TORONTO, May 19, 2021 (GLOBE NEWSWIRE) — Mount Logan Capital Inc. (NEO: MLC) (“Mount Logan,” “our,” “we,” or the “Company”) announces that it has entered into a non-binding agreement (the “Purchase Agreement”) for the acquisition of 100% of the equity of Ability Insurance Company (“Ability”) for a purchase price of $20 million (the “Purchase Consideration”) to be satisfied through the issuance of an unsecured promissory note in the amount of $15 million and $5 million of common shares of Mount Logan (the “Transaction”). Mount Logan’s wholly-owned subsidiary, Mount Logan Management LLC (“ML Management”) is proposed to manage a meaningful portion of Ability’s assets, significantly increasing ML Management’s assets under management (“AUM”).
Ability is a Nebraska domiciled insurer and reinsurer of long-term care policies with approximately $900 million of invested statutory assets as of December 31, 2020. Ability is unique in the insurance industry in that its long-term care portfolio’s morbidity risk has been largely re-insured to third parties, and Ability is no longer insuring or re-insuring new long-term care risk. The Seller (as defined below) has also agreed to provide certain protections that increase the credit quality of Ability’s investment portfolio and limit risk associated with Ability’s long-term care liabilities. As part of the Transaction, it is proposed that the Purchase Consideration will be retained by Ability on a contingent basis to support Ability’s investment portfolio. As part of the Transaction, Mount Logan will further invest $10 million of capital into Ability to strengthen Ability’s balance sheet and launch a platform for the reinsurance of annuities, which is expected to reinsure $150 million of fixed annuities within six months following the completion of the Transaction.
The acquisition of Ability by Mount Logan will combine two companies providing products and services that Mount Logan believes are, and will continue to be, in high demand – insurance solutions and asset management. The stronger capital base and alignment will allow Mount Logan to scale asset and liability origination for the benefit of Ability’s policy holders as well as Mount Logan and its shareholders.
Completion of the Transaction is subject to the final approval of definitive agreements by the parties, as well as a number of customary terms and conditions including final approval of the Nebraska Department of Insurance and approval of the Neo Exchange Inc. No definitive binding documentation has been entered into in respect of the Transaction and there are no assurances that the Transaction will be completed on the terms described or at all. Assuming all necessary approvals are received, the Company expects the Transaction to be completed in the third quarter of 2021.
Purchase Consideration represents a discount to statutory book value;
Mount Logan to infuse $10 million of capital into Ability;
$20 million Purchase Consideration to be retained in Ability on a contingent basis to support Ability’s investment portfolio;
Transaction is expected to significantly increase ML Management’s AUM and fee income;
Post-close Risk Based Capital Ratio (“RBC Ratio”) anticipated to be in excess of 400%;
Ability’s balance sheet would be significantly strengthened by Mount Logan’s investment;
Mount Logan would continue to decrease Ability’s long-term care exposure and replace and grow assets by focusing the business on attractive annuity products;
The Seller has agreed to cede $150 million of annuities to Ability in the first six months following the completion of the Transaction; and
Mount Logan has been working constructively with the regulator and subject to final approval anticipates to close the Transaction in the third quarter of 2021
Ted Goldthorpe, Chief Executive Officer and Chairman of Mount Logan, noted, “Completion of the transaction will further progress Mount Logan in its transition into asset management and builds on the experience of MLC’s management in directing the investment activity of insurance company assets. Moreover, we are pleased to welcome the management team of Ability to the Mount Logan family. The proposed transaction is beneficial for Ability’s policy-holders and highly strategic for MLC, and we will look to use it as a growth platform.”
Ability is currently owned by Advantage Capital Holdings, LLC (the “Seller”), an insurance and financial business platform.
About Mount Logan Capital Inc.
Mount Logan Capital Inc. is an alternative asset management company that is focused on public and private debt securities in the North American market. The Company actively sources, evaluates, underwrites, manages, monitors and primarily invests in loans, debt securities, and other credit-oriented instruments that present attractive risk-adjusted returns and present low risk of principal impairment through the credit cycle.
For additional information, contact:
Chief Financial Officer
Mount Logan Capital Inc.
365 Bay Street, Suite 800
Toronto, ON M5H 2V1