Fairfax gains $1.4bn from Go Digit in 4 yrs

Fairfax, promoted by Prem Watsa, a Canadian investor of Indian origin, has made one of quickest gains of $1.4 billion from its investment in Indian non-life insurance joint venture, Go Digit.

Of course, the return for Fairfax from its investment in Digit is almost double than what it made out of its investment in the country's largest private sector non-life insurer, ICICI Lombard. Fairfax has already exited from the joint venture by selling its entire 36 per cent in phases-finally in October, 2019- after staying invested for 18 years.

Since Digit was founded in 2017, Fairfax has invested approximately $154 million in the company. That investment is currently carried on Fairfax's balance sheet at $532 million and, when the new equity issuances by Digit Insurance close and the Indian government and regulatory approvals are given for 74 per cent for Fairfax, it will have an aggregate market value of approximately $2.3 billion.

This will result in a gain of approximately $1.8 billion, resulting in an increase in the book value of Fairfax of approximately $ 61 per basic share Fairfax is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and the associated investment management.

Despite the overall industry growing around five per cent last year due to the pandemic, Digit grew by 44 per cent, with a premium of Rs 3,243 crore (April '20 – March '21).

Digit has two crore+ customers and has processed more than four lakh claims. Moreover, it has maintained its industry leading growth in the new financial year with robust GWP growth of 70 per cent during April-May 2021, versus 17 per cent for the general insurance industry.

Kamesh Goyal, Chairman and Founder, Digit Insurance, said "We are humbled by the confidence shown by existing investor Faering Capital and the new investors. We will continue to focus on increasing insurance penetration and simplifying processes through technology. Customer service remains our key focus which is evidenced by our high customer rating, 4.7 on Google and 4.9 on Facebook, based on 29,000 reviews, and fast claim settlements."

Commenting on this milestone, Prem Watsa, Chairman, Fairfax Financial holdings, the first investor in Digit Insurance, said, "It was a difficult year for economies the world over but I am glad to see Digit continuing to stick to its mission of simplicity and growing ahead of the industry. Their relevant products, tech-enabled, simple processes and customer-centric approach sets them apart. My best wishes to the team."

Fairfax Financial Holdings in a statement, released from Toronto, said that Go Digit General Insurance, an Indian digital general insurance subsidiary of Fairfax's 49 per cent owned Go Digit Infoworks Services, has entered into agreement with Faering Capital, Sequoia Capital India, IIFL Alternate Asset Managers and certain other parties to raise approximately $200 million (14.9 billion Indian rupees) for new equity shares, valuing Digit Insurance at approximately $3.5 billion (259.5 billion Indian rupees).

According to Fairfax Financial Holdings, when the new equity issuances by Digit Insurance close, the increased valuation of Digit Insurance will result in Fairfax recording a net unrealized gain on investments of approximately $1.4 billion on its investment in Digit compulsorily convertible preference shares (an increase of approximately $47 in book value per basic share).

The transactions are likely to close in the third quarter of 2021.

In addition at that time, the pre-tax excess of fair value over carrying value of Fairfax's equity accounted interest in Digit will increase by approximately $ 0.4 billion (an increase of a further approximately $14 in book value per basic share), which will not be reflected in Fairfax's consolidated net earnings or in the calculation of book value per share until the Indian government gives final approval of its announced intention to increase foreign ownership limits in the insurance sector from 49.0 per cent to 74.0 per cent and Fairfax obtains regulatory approval specific to its holdings in Digit.

Fairfax's 49.0 per cent equity interest in Digit is comprised of a 45.3 per cent interest in Digit common shares and a 3.7 per cent interest through Digit compulsorily convertible preference shares that are considered in-substance equity.

Foreign direct ownership in the insurance sector in India is currently limited to 49 per cent and, as a result, the remainder of Fairfax's investment in Digit compulsorily convertible preference shares is recorded at fair value through profit, said the company.