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Moody’s affirms a stable outlook for RenRe post acquisition of AIG’s Validus Re

24th May 2023 - Author: Saumya Jain

Moody’s affirms RenaissanceRe’s ratings following the announced acquisition of Validus Reinsurance from American International Group, Inc. and said the outlook looks stable.

Moody'sRenaissanceRe has agreed to acquire Validus Re for $2.985 billion in cash. The company plans to fund the acquisition with a combination of equity, including $250 million of common shares issued to AIG, debt as well as cash on hand. The parties expect to complete the transaction in Q4 2023, pending regulatory approvals and other customary closing conditions.

Moody’s Investors Service has affirmed the A3 senior debt rating of RenaissanceRe Holdings Ltd. and the A1 insurance financial strength (IFS) rating of Renaissance Reinsurance Ltd.

The acquisition will be including Validus Reinsurance Ltd. and its consolidated subsidiaries, AlphaCat Managers Ltd., and its managed funds, as well as the renewal rights to Talbot syndicate’s assumed treaty reinsurance business (collectively, Validus Re).

According to Moody’s, the affirmation of RenRe’s ratings is a reflection of the company’s market leadership position in property catastrophe reinsurance, strong analytic and modeling capabilities, and good capitalization. The company’s well-diversified reinsurance portfolio also supports the rating.

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The acquisition of Validus Re enhances RenRe’s position in the global P&C reinsurance sector, making it one of the top five reinsurers based on premium volume and increasing its relevance in the market. RenRe also owns RenaissanceRe Capital Partners, a leading third-party capital platform that gives institutional investors access to the company’s underwriting expertise while providing RenRe with fee income and expanded underwriting capacity. AIG intends to make substantial investments in RenRe’s joint venture vehicles following the closing of the transaction.

Although there are a number of challenges, including the potential for earnings and capital volatility arising from the company’s substantial property catastrophe reinsurance exposures, as well as the firm’s exposure to reserve risk from claims inflation in long-tail casualty reinsurance lines. RenRe’s plan to issue debt to help fund the transaction is likely to increase the company’s consolidated adjusted financial leverage while increasing the company’s financial leverage relative to tangible capital significantly given the goodwill resulting from the acquisition.

Moody’s expects RenaissanceRe to reduce its leverage toward historical levels over the next several years through growth in retained earnings. Integration risks should be manageable given RenaissanceRe’s favourable experience in prior acquisitions and its expertise in managing risk aggregations prudently, particularly in property catastrophe reinsurance. In addition, AIG will retain 95% of the development on Validus Re’s net reserves at closing, mitigating RenaissanceRe’s balance sheet risk.

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