“We expect we can fully deploy Validus Re into our portfolio on day one, and fully integrate it into our risk management system soon afterwards, diminishing execution risk,” says RenaissanceRe CEO Kevin O’Donnell, following the news that the firm is set to acquire Validus from AIG for $3bn.
“We believe the benefits we receive, as well as the synergies we realise, will result in this transaction being immediately accretive to each of our three drivers of profit, as well as book value per-share, earnings per-share and ROE,” O’Donnell explained.
He continued, “Of course, there are always risks in any transaction. But in this case, we believe there are several mitigants to these risks.
“To begin with, Validus Re’s underwriting portfolio is very similar to our existing book. We have deep familiarity with the lines of business that they write, in the geographies in which they write them. We also have all the tools, expertise and platforms necessary to support the business.
“In effect, this is the equivalent of assuming a 30% quota share on our existing underwriting portfolio.”
O’Donnell concluded, “As a result, we expect we can fully deploy Validus Re into our portfolio on day one, and fully integrate it into our risk management system soon afterwards, diminishing execution risk.”
“In addition, by employing ceded retro and our Capital Partners businesses, we can bring strong efficiencies to the Validus Re portfolio.
“This is one reason we require less capital to support this business than Validus Re. While our combined portfolio will have a higher PML on an absolute basis, on a percentage of equity basis, they will be flat to down.”
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.
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.
As part of the arrangement, AIG has committed to deliver at closing $2.1 billion in unlevered shareholder’s equity to RenRe, further helping to boost its stature and firepower. The deal is anticipated to close in Q4 2023 and has been agreed by the Directors.
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.
