Reinsurance and Lloyd’s drive AIG to acquire Validus

American International Group (AIG) is taking over Validus in order to diversify the business into reinsurance and to add a Lloyd’s syndicate, management suggested in a Jan. 22 conference call discussing the deal.

AIG has entered into a definitive agreement to acquire all outstanding common shares of Bermuda-based Validus Holdings in a deal valued at $5.56 billion, funded by cash on hand.

The transaction enhances AIG’s general insurance business, adding a reinsurance platform, an insurance-linked securities (ILS) asset manager, a presence at Lloyd’s and complementary capabilities in the US crop and excess and surplus (E&S) markets.

“There are a lot of businesses that we don’t do and therefore concentrated in too few for my liking,” said AIG CEO Brian Duperreault during the conference call.

Before the deal, AIG was neither operating in the reinsurance business nor in the Lloyd’s market.

The planned transaction includes Validus Re, a treaty reinsurer with a focus on property catastrophe, marine and specialty with gross premium written of $1.11 billion in the last twelve months as of September 30, 2017. After the transaction, Validus Re will represent 3 percent of AIG’s total general insurance franchise, according to the presentation.

In addition, AlphaCat manages $3.2 billion on behalf of clients by investing in ILS products. This business will represent 1 percent of AIG’s total general insurance franchise after the deal.

Duperreault noted that he knows the reinsurance business well as he has been involved in running reinsurance companies or advising them in the past. “I particularly like the reinsurance business as additive to what we do,” he said. While noting that retrocession rates have increased more than property catastrophe after the third quarter 2017 cat losses, Duperreault said that he sees “great growth potential” especially in the AlphaCat capabilities.

AIG will also be entering the Lloyd’s market through the Validus deal by acquiring Talbot, a syndicate focused on short-tail specialty lines. The addition will broaden AIG’s technical underwriting expertise and provide access to distribution in the largest specialty insurance market in the world, according to the company.

“I’ve been interested in getting a Lloyd’s platform. We don’t have one and I think it is an important strategic asset to any general insurance company,” Duperreault said.

Talbot had $921 million of gross premium written as of September 2017.

This news story is a snapshot of a longer feature on Intelligent Insurer. To find out more about how Duperreault is reshaping AIG, please click here.

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