DSA Re deal paves way for AIG legacy divestment

The deal with The Carlyle Group will make it easier for AIG to divest the rest of its DSA Re legacy portfolio, AIG CEO Brian Duperreault said during the group’s second quarter earnings call.

American International Group (AIG) is selling 19.9 percent of its legacy portfolio DSA Re, a wholly-owned Bermuda-based reinsurer formed in February, 2018, to private equity firm The Carlyle Group.

DSA Re currently reinsures $36 billion of AIG’s legacy life and annuity and general insurance liabilities.

AIG could potentially free up between $2 and $5 billion capital through the legacy portfolio transferred to DSA Re, according to Morgan Stanley research.

“We've monetized almost $11 billion in legacy assets over the last two plus years, and at its peak legacy represented roughly 24 percent of our deployed capital,” AIG chief financial officer Siddhartha Sankaran, explained during the conference call.

“Our transaction with Carlyle further advances our objective to reduce capital tied up in long-term risks that don't meet our hurdle rates,” Sankaran added.

As part of the transaction, AIG is providing Carlyle a five-year cover against adverse development on $5 billion of general insurance reserves up to their investment amount.

There is no reserve cover provided on the approximately $31 billion of life and annuity reserves and the proceeds from the transaction are free to be deployed for capital management purposes, Sankaran noted.

“If we were to sell our remaining position in DSA Re today, we would improve our excess capital position and free cash flow as our statutory capital ratios would not be impacted, Sankaran said.

“Our build-out of DSA Re affords us great flexibility to consider our options around participating in the run-off market. As always, we'll continue to evaluate all of our strategic options,” Sankaran noted.

Duperreault added that the partial sale of DSA Re is likely to make it easier to divest the remaining share in the business, pointing to the fact that as part of the transaction, AIG and Carlyle entered into a strategic partnership to build DSA Re into a standalone provider of reinsurance, claims handling, and run-off management solutions for long-dated, complex risks to the global insurance industry.

The creation of a standalone company with an operational capability will make it easier to divest, Duperreault said. “And it gives us the optionality to do that or not do that. So I think it's a very good trend that we have,” he added.

“We've been managing the legacy for a long time,” Duperreault noted. “I think the results speak for themselves. We'll continue to look at it. If there's opportunities to do something else with the remaining legacy, we will,” he said.

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