RenaissanceRe, the Bermuda headquartered re/insurer, is aiming to become a top-5 global property and casualty reinsurer with the acquisition of Validus and all its subsidiaries from global player AIG for around $3 billion.
RenaissanceRe (RenRe) is set to raise capital to complete this significant acquisition, with an offering of 6.3 million shares launched, which with underwriters options could raise over $1.44 billion (at the May 19th share price) towards the deal to buy Validus Holdings, Ltd., Validus Specialty, LLC and Validus Reinsurance Ltd., as well as other subsidiaries including the AlphaCat Managers ILS fund management unit and the Talbot treaty reinsurance book.
AIG said that the sale will continue its progress in portfolio repositioning, as it offloads a significant amount of its reinsurance underwriting activity.
For RenRe, this is the third Bermuda based consolidation deal the company has entered into, after Platinum and Tokio Millennium Re.
RenRe said the $2.985 billion deal will further advance its strategy, as it seeks to move further up the global reinsurance ranks, accelerating growth into the favourable market environment, while enhancing its three profit drivers, of underwriting, fee and investment income.
RenRe is acquiring the treaty reinsurance business of AIG, so it includes Validus and all of its consolidated subsidiaries, AlphaCat Managers Ltd. and its managed insurance-linked securities (ILS) funds, and all renewal rights to the assumed reinsurance treaty unit of Talbot.
The deal excludes the Talbot Underwriting Ltd., Western World and Crop Risk Services businesses (already for sale), that AIG will retain.
As part of the arrangement, AIG has committed to deliver at closing $2.1 billion in unlevered shareholder’s equity to RenaissanceRe, further helping to boost RenRe’s stature and firepower.
The deal is anticipated to close in Q4 2023 and has been agreed by Directors, RenRe explained, while shareholder approval is not acquired.
Under the terms, AIG will retain 95% of the development on net reserves related to the deal at closing, providing a cleaner acquisition for RenRe to assume and move forwards with.
AIG is also set to make investments into RenRe’s Capital Partners business, in particular the DaVinciRe, an equity like catastrophe reinsurance focused sidecar structure, and Fontana Holdings, a casualty and specialty reinsurance joint-venture vehicle, so further boosting RenRe’s third-party capital for underwriting.
Kevin O’Donnell, President and Chief Executive Officer of RenaissanceRe, commented on the deal, “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 favorable market environment, we expect to accelerate our three drivers of profit – underwriting, fee, and investment income.
“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.”
AIG said that the sale of Validus and related reinsurance businesses will help it to achieve future capital synergies of around$400 million via the recapture of reserves and transferring the Validus Re balance sheet (over $1.5bn at Dec 31 2022) to RenRe, while it will also be entitled to share in the capital generated through sharing in the value of reserve redundancies that may emerge, as well as net income generated through the closing of the deal from the subject businesses.
AIG said the total estimated transaction value to it is around $4.5 billion.
Peter Zaffino, Chairman and Chief Executive Officer of AIG, stated, “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.
“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.
“At the same time, our investment in RenaissanceRe’s common shares demonstrates our commitment to the strong relationship we have with RenaissanceRe and, coupled with our investment in DaVinci Reinsurance and Fontana Re, will allow us to continue to participate in the growth of the reinsurance market with less risk and capital requirements. I have enormous respect for Kevin and RenaissanceRe and look forward to continuing our longstanding and successful partnership.”
This deal offers benefits to both parties, with AIG able to further focus on its primary insurance businesses, while offloading a Bermuda reinsurance venture, while RenRe gains complementary scale, expertise and the capital support of the giant insurance business that is AIG.
RenRe has proven before that it can acquire and assume businesses efficiently and benefit quickly from the growth potential the transactions offered, so we’d expect that to be evident again as it assumes and integrates the Validus Re entities and moves forwards into 2024 as an even larger global reinsurance player.
