Validus Re sale paves fresh path for AIG, sparks strategic shift

American International Group (AIG) is sharpening its focus on accelerating core insurance operations and targeting investments in low-risk, high-reward ventures with its  strategic move to sell Validus Re after years of transformation and portfolio re-underwriting. Its CEO Peter Zaffino (pictured) says the deal marks a strategic milestone for the company and a marked shift towards a streamlined model with more financial flexibility to unlock new avenues for growth.

AIG has moved to sell its treaty reinsurance business, which includes Validus Re, plus the ILS manager AlphaCat and renewal rights to the treaty reinsurance book at unit Talbots, to RenaissanceRe for nearly $3 billion, largely cash with a stake in new equity.

“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,” said Zaffino.

“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,” he added.

The Validus Re sale follows that of Crop Risk Services, which was purchased by AIG as part of its 2018 acquisition of Validus Holdings. Crop Risk is being acquired by American Financial Group for $240 million.

However, AIG is retaining its ownership of Talbot Underwriting and Western World. These entities contribute significantly to AIG’s total gross premiums written, amounting to approximately $1.6 billion.

On the reinsurance side, the company is looking to make substantial investments in RenaissanceRe’s DaVinci Reinsurance and Fontana Re managed funds to capitalise on opportunities in the current market.

“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,” Zaffino said.

The sale of Validus Re is expected to close in the fourth quarter of 2023. Upon completion, AIG will gain $2.73 billion in cash and $250 million in RenaissanceRe common shares. Additionally, AIG will receive all capital in excess of $2.1 billion of shareholders’ equity of Validus Re and achieve future capital synergies of approximately $400 million from the recapture of reserves as a result of transferring the Validus Re balance sheet to RenaissanceRe, which together, as of December 31, 2022, was over $1.5 billion.

The total estimated transaction value is expected to exceed $4.5 billion, according to AIG.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.