American International Group (AIG) has reached a definitive deal to offload its reinsurance business to RenaissanceRe for $2.98bn.
The cash-stock deal involves AIG’s Validus Re unit, along with AlphaCat and the Talbot Treaty reinsurance business.
It will see RenaissanceRe paying $2.735bn in cash and $250m in common shares to AIG.
The overall deal value is projected to surpass $4.5bn with AIG getting all capital “in excess of $2.1bn of shareholders’ equity of Validus Re”.
The firm will also secure nearly $400m in future capital synergies from the recapture of reserves by moving the Validus Re balance sheet to RenaissanceRe, “which together, as of December 31, 2022, was over $1.5bn”.
AIG will continue to operate Talbot Underwriting and Western World, which it bought in 2018 as part of Validus’ purchase.
The deal is anticipated to complete in the fourth quarter of this year, upon receipt of regulatory clearances.
It has already secured approval from the RenaissanceRe board.
RenaissanceRe will finance the transaction’s cash component using its available funds, as well as proceeds from common equity and debt issuance.
Post-deal completion, AIG plans to make vital investments in RenaissanceRe’s DaVinci Reinsurance and Fontana Re-managed funds via its investment portfolio.
Earlier this month, AIG agreed to sell Crop Risk Services, which was also bought as part of the firm’s acquisition of Validus in 2018, to American Financial Group in a $240m deal.
AIG chairman and CEO Peter Zaffino said: “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.”