AIG to Sell Validus Re to RenRe in $3B Deal

American International Group (AIG) said late Monday it has entered into an agreement to sell Validus Re to RenaissanceRe Holdings for about $3 billion, mostly cash.

The deal, expected to close during the fourth quarter, includes AlphaCat and renewal rights to Talbot Treaty reinsurance businesses. AIG will retain Talbot Underwriting and Western World – purchased as part of its 2018 acquisition of Validus Holdings Ltd. The businesses currently represent about $1.6 billion of AIG’s total gross premiums written.

The breakdown of the acquisition consists of $2.735 billion in cash and $250 million in RenaissanceRe common shares, AIG said, adding that it expects to make “significant” investments in RenaissanceRe’s DaVinci Reinsurance and Fontana Re managed funds through AIG’s investment portfolio.

In a statement, CEO Peter Zaffino said the deal “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.”

Earlier this month AIG entered into an agreement with American Financial Group Inc. to sell Crop Risk Services (CRS), another piece of Validus Holdings purchased by AIG in 2018.

“We have spent the last several years transforming Validus Re by re-underwriting the portfolio and driving operating leverage leading to improved outcomes,” Zaffino added. “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.”

RenRe said AIG will retain 95% of the development on net reserves. AIG said it will “achieve future capital synergies of approximately $400 million from the recapture of reserves as a result of transferring the Validus Re balance sheet to RenaissanceRe,” and get all capital in excess of $2.1 billion of shareholder equity of Validus Re, raising the total estimated transaction value to more than $4.5 billion.

“This acquisition advances our strategy as a leading global property and casualty reinsurer, providing additional scale, and increasing our importance to customers,” said Kevin O’Donnell, president and CEO of RenaissanceRe, in a separate statement. “Furthermore, by gaining access to a large, attractive book of reinsurance business in a favorable market environment, we expect to accelerate our three drivers of profit – underwriting, fee, and investment income.”

The acquisition creates a top 5 global P/C reinsurer, RenRe said.