AIG is to divest its Bermudian reinsurer Validus, but will retain its Talbot Underwriting and Western World businesses, which were bought in the same deal in 2018.
RenaissanceRe has signed a deal with AIG in which the former will acquire the latter’s treaty reinsurance business, including the firm Validus Reinsurance and its consolidated subsidiaries.
A statement from RenaissanceRe said that it would pay approximately $2.985bn, including $2.735bn in cash and $250m in common shares, as its part of the transaction.
The deal will see Bermuda-based RenRe acquire AlphaCat Managers and its managed funds, along with all renewal rights to Validus Re.
In return, AIG has committed to deliver at closing $2.1bn in unlevered shareholder’s equity to RenaissanceRe with any excess to be retained by AIG.
AIG said that the cash consideration is expected to be funded through RenaissanceRe available funds and proceeds from the issuance of common equity and debt. The shares received by AIG will be valued at the lower of the public offer price for an expected underwritten public offering by RenRe or the closing price on May 22, 2023.
AIG will retain Talbot Underwriting and Western World, which were purchased as part of its 2018 acquisition of Validus Holdings and have represented approximately $1.6bn of the US insurance group’s total gross premiums written.
The agreement has been approved by RenRe’s Board of Directors. The transaction is expected to close in the fourth quarter of 2023 and is subject to customary closing conditions and regulatory approvals. No shareholder approval is required.
On May 2, 2023, AIG announced that it reached an agreement to sell Crop Risk Services, also purchased as part of the 2018 acquisition of Validus Holdings in 2018, to American Financial Group, Inc. for $240m; this transaction is expected to close in the third quarter of 2023.
Kevin O’Donnell, president and CEO, RenaissanceRe, said: “This acquisition advances our strategy as a leading global property and casualty reinsurer, providing additional scale, and increasing our importance to customers.
“Furthermore, by gaining access to a large, attractive book of reinsurance business in a favourable market environment, we expect to accelerate our three drivers of profit – underwriting, fee, and investment income.”
O’Donnell went on: “Additionally, we are enhancing our relationship with AIG and demonstrating how our consistent, highly differentiated strategy provides us with unique access to large, one-of-a-kind opportunities that create shareholder value. I have deep respect for Peter and AIG and look forward to extending our partnership.”
As part of the transaction, AIG will retain 95% of the development on net reserves at closing. In addition, following the closing of the transaction, AIG expects to make substantial investments in RenaissanceRe’s Capital Partners business.
Peter Zaffino, chairman and CEO of AIG, said: “Today’s announcement represents another key milestone for AIG and is strategically significant for both AIG and Validus Re.
“For AIG, it further simplifies our business model and reduces volatility in our portfolio, while generating significant cash liquidity and capital efficiencies that enable us to accelerate our capital management strategy.”
He added: “We have spent the last several years transforming Validus Re by re-underwriting the portfolio and driving operating leverage leading to improved outcomes. As part of RenaissanceRe, Validus Re will benefit from global scale that will allow the business to continue to grow, expand its capabilities and drive value for clients and other stakeholders.”