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Prem Watsa’s Fairfax Financial Holdings Ltd. is in talks with the Ontario Municipal Employees Retirement System (OMERS) to see if the pension fund will help finance his $4.9 billion takeover of Allied World Assurance Co., according to a person familiar with the discussions.

OMERS could take a minority stake in Zug, Switzerland-based Allied, and there have also been talks with other potential backers, said the person, who asked not to be identified discussing a confidential matter.

A partnership could reduce the amount of Fairfax stock that Watsa needs to fund the transaction, limiting dilution for his shareholders. Under terms of the deal, announced Dec. 18, his Toronto-based company would pay about $900 million in cash and $4 billion in Fairfax stock. Fairfax has the lowest of 10 investment grade scores by S&P Global ratings, which limits Watsa’s ability to take on more debt without risking a cut to junk status.

“Doing it from an equity perspective ensures that we meet the rating agency requirement, so we wanted to be sure it was fully funded with equity,” Fairfax President Paul Rivett said in a Dec. 19 conference call with investors. “But that said, we want to also do the best we can for our Fairfax shareholders. So, that is why we will be looking for these third-party equity providers like we did find for Brit and Eurolife, to reduce the dilution to our shareholders.”

An OMERS spokesman declined to comment, and a representative for Fairfax didn’t immediately respond to a message.

After announcing a deal in February 2015 to buy Brit Plc, Watsa turned to OMERS two months later to take a 30 percent stake in the Lloyd’s of London insurer, reducing his financing costs. S&P restored Fairfax’s outlook to stable from negative in May 2015.

OMERS also joined Fairfax in August in the purchase of a controlling stake in Eurolife ERB Insurance.

–With assistance from Jordyn Holman.

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• Fairfax Financial Agrees to Sell 30% Stake in Brit to Ontario Pension Fund
• Canada’s Fairfax Financial to Raise $536.4M to Fund Larger Stakes in 2 Insurers
• Fairfax to Sell Shares for Brit Acquisition to Protect Credit Rating
• Canada’s Fairfax to Acquire London-Based Brit for $1.88 Billion