FBD insurance has secured €70m in capital from Fairfax Financial Holdings. This will see Fairfax invest €70m in FBD Holdings through a private placement of a convertible bond.

Fairfax, based in Toronto, Canada, will effectively become an investor in FBD. This investment will have a coupon (interest) rate of 7% per annum.

The bond carries the option to be converted into equity in the business, should the shares move to €8.50 over a period of time. This is at a 37% premium over Tuesday’s closing share price. The convertible bond will be exercisable from year three to year 10 and Fairfax would gain around eight million shares at the exercisable price for its €70m investment.

The deal means Farmer Business Developments, which currently owns 25% of FBD Holdings, will see its shareholding diluted to around 20%. It would see Fairfax become the second largest holder at that stage, where it would own around 20% of the Holdings company.

Commenting, interim chief executive Fiona Muldoon said: “This is a significant vote of confidence in FBD and in our future success. I am confident that the completion of this transaction helps our business plan, with our core farming and small business customers and with our consumer customers also. It underpins the board’s strong commitment to maintain healthy capital buffers as we prepare for the implementation of Solvency II.”

Fairfax is engaged in property and casualty insurance, and reinsurance and investment management.

The transaction will be subject to FBD shareholder approval.

Farmer Business Developments will hold an emergency meeting on Wednesday night to discuss this deal.