A group led by Toronto-based Onex Corp. (ONEX.TO) is selling USI Insurance Services in a deal that values the U.S.-based insurance firm at US$4.3 billion to  New York-based private equity firm KKR & Co. (KKR.N) and the Montreal-based Caisse de depot, which is one of Canada's biggest retirement fund managers.

The deal is the latest in a string of mergers in the insurance market, which has not grown quickly enough to support smaller brokerages.

"It's a sector we like," Caisse Chief Investment Officer Roland Lescure said in an interview. "It's quite defensive, it has high cash-flow generation, and it's a growing sector where there is consolidation taking place."

The Caisse, Canada's second-largest public pension plan, is buying businesses to help it diversify from public equity and fixed income markets.

The pension fund, which has net assets of more than $270 billion, wants to have 30 per cent to 35 per cent of its investments in areas such as private equity, infrastructure and real estate in the next four to five years, compared with 28 per cent currently.

"At a time when there are lots of fears and questions on the potential protectionism and border adjustment tax," Lescure said, "being exposed to small and medium companies is a safer way of exposing yourself to the U.S. economy."

Valhalla, New York-based USI had net debt of about US$1.82 billion as of Dec. 31 and generated 2016 earnings of US$353 million before interest, taxes, depreciation and amortization.

USI provides insurance and employee benefit-related products to smaller U.S. companies. Its staff of 4,400 operates from 140 offices throughout the United States.

Canadian private equity firm Onex bought USI in December 2012 for US$2.3 billion from Goldman Sachs Group Inc's (GS.N) private equity arm, funding US$702 million of that through equity and borrowing the rest, with debt placed on the company.

The biggest deal in the insurance brokerage sector last year was the merger of Willis Group Holdings and Towers Watson. It created Willis Towers Watson Plc (WLTW.O), a company with a US$17 billion market capitalization.

USI has been active in buying small regional rivals. It has been trying to beef up USI One Advantage, an interactive platform that helps it share information with sales consultants sitting in offices around the United States.

KKR and the Caisse said they expected the deal to close by the end of the second quarter.