The Carlyle Group and T&D Holdings have partnered to acquire a 76.6% ownership interest in Fortitude Re, the run-off reinsurer launched by AIG and Carlyle in November 2018.
Valued at $1.8 billion, the deal will leave Carlyle with a 71.5% stake in Fortitude Re (including the 19.9% stake it took at launch), with T&D at 25% and AIG at 3.5%.
The parties claimed that the acquisition will enhance Carlyle’s ability to support Fortitude Re’s growth plans, while providing the reinsurer with access to Carlyle’s array of investment strategies.
T&D, meanwhile, will bring additional industry and international expertise to develop Fortitude Re’s strategically differentiated capabilities, it said.
With the backing of Carlyle, T&D and AIG, Fortitude Re intends to continue pursuing global opportunities to acquire and manage legacy insurance portfolios.
Under the terms of the deal, AIG has agreed to pay Fortitude Re for certain adverse developments in property casualty related reserves that may occur up to the end of 2023, up to a maximum payment of $500 million.
“Today’s announcement is another important step in our strategy to efficiently manage our legacy liabilities by further preparing Fortitude Re for independence, while strengthening our balance sheet and maintaining our primary focus on upholding policyholder and regulatory commitments,” said Brian Duperreault, AIG’s President and Chief Executive Officer.
“Carlyle’s expertise in separating and standing up companies has been invaluable to date, and we look forward to working with their team and T&D, with whom we have a longstanding relationship in Japan, as we continue the separation process,” he explained. “I also want to thank the entire Fortitude Re team for all their hard work in building the organization. We look forward to their future success.”
Kewsong Lee, Carlyle’s Co-Chief Executive Officer, also commented: “This transaction demonstrates Carlyle’s strategy of developing scalable platforms to drive shareholder value. Fortitude Re, led by CEO James Bracken, is strongly positioned as an industry leader in managing run-off insurance liabilities, and Carlyle looks forward to partnering with the management team to help Fortitude Re grow.
“We are excited about the prospects of further developing our global investment management services for Fortitude Re as we work to deliver attractive returns across a variety of asset classes,” Lee continued. “We welcome T&D to our partnership with AIG, both of whom are highly experienced players in insurance, and look forward to creating an attractive investment opportunity for our fund investors.”
Finally, Hirohisa Uehara, T&D’s Representative Director and President, stated: “We are really honored to invest in Fortitude Re, which has developed a sophisticated platform for managing life and P&C insurance liabilities.”
“We have longstanding relationships with both AIG and Carlyle, and we believe Fortitude Re’s closed book business will contribute significant synergies to our domestic life insurance business as well as diversification of our business portfolio. Additionally, we look forward to supporting Fortitude Re’s growth by leveraging our years of experience as a Japanese life insurer.”
The transaction is expected to close in mid-2020, subject to required regulatory approvals and other customary closing conditions.
Willkie Farr & Gallagher LLP served as legal advisor to AIG during the transaction, while Debevoise & Plimpton LLP served as legal advisor to The Carlyle Group and Oliver Wyman served as strategic financial advisor.
Citi served as financial advisor and Nishimura & Asahi, King & Spalding LLP and Appleby were the legal advisors to T&D, and Sidley Austin LLP served as legal advisor to Fortitude Re.