AIG to acquire Validus for $5.56bn, including ILS unit AlphaCat

Insurance giant American International Group, Inc. (AIG) is set to acquire Bermudian reinsurance group Validus Holdings, Ltd., in a deal that has just been announced and will see AIG taking control of Validus’ third-party capital and ILS investment management unit AlphaCat Managers.

AIG explained the rationale, saying, “The transaction enhances AIG’s General Insurance business, adding a leading reinsurance platform, an insurance-linked securities asset manager, a meaningful presence at Lloyd’s and complementary capabilities in the U.S. crop and excess and surplus (E&S) markets.”

“Validus is an excellent strategic fit for AIG, bringing new businesses and capabilities to our General Insurance operation, expanding the bench of our management team and deepening our underwriting expertise,” Brian Duperreault, President and Chief Executive Officer of AIG further explained. “With our global scale and the strength of our balance sheet, I am confident that Validus will thrive within AIG and strengthen our ability to deliver profitable growth for our shareholders as we strategically position AIG for the future.”

Ed Noonan, Validus’ Chairman and Chief Executive Officer, also said, “We believe this transaction offers compelling value for our shareholders and reflects the strength of the business we’ve built together with our talented global team. Joining AIG and becoming part of a larger, more diversified organization immediately opens new opportunities for our people and our franchise. Validus will be able to serve clients and brokers in new and exciting ways, which will enhance our ability to grow profitably.”

Peter Zaffino, AIG’s Chief Executive Officer, General Insurance, added, “I have worked with and admired Validus since its formation and have the utmost respect for what the management team has achieved. They have built a business that is highly compatible with AIG’s General Insurance business. Brokers and customers of both companies will benefit from this acquisition, and I look forward to all that we will be able to accomplish by bringing Validus into AIG.”

The acquisition of Validus, its reinsurance, insurance and ILS units, creates a huge globally and tier diversified re/insurance business for AIG, adding many specialties that the insurer lacked before and including the benefits of a unit that is one of the largest and best established in the ILS space in AlphaCat.

AIG said, “The acquisition of Validus represents a significant step forward in AIG’s strategy to deliver profitable growth.”

AIG will pay Validus common share holders $68 per share, resulting in a total transaction value of $5.56 billion, funded by AIG’s cash on hand.

AIG said the acquisition of Validus would be, “immediately accretive to AIG’s earnings per share and return on equity (ROE).”

“Validus brings complementary, market-leading capabilities to AIG, enhancing AIG’s platform and long-term growth opportunities for both companies. The diversification benefits of the transaction also provide significant additional capital efficiencies over time,” the firm said.

AIG said that Validus Re brings it, “deep relationships with brokers and clients and will benefit from being part of a more diversified business, along with the additional size and strength of AIG’s balance sheet.”

While ILS unit AlphaCat will, “leverage the underwriting expertise within Validus Re and provide greater risk management flexibility.”

Meanwhile Talbot will, “broaden AIG’s technical underwriting expertise and provide access to distribution in the largest specialty insurance market in the world. Talbot’s brokers and clients will benefit from the complete suite of capabilities that has made AIG a global leader, along with access to solutions both within and outside of the Lloyd’s market.”

Finally, Western World adds, ” technical expertise in binding authority. In addition, AIG gains Crop Risk Services, which provides access to the North American crop insurance market.”

This is the biggest deal in a number of months in insurance and reinsurance and the resulting combination of AIG and Validus, plus third-party capital of course, is compelling. The diversification will benefit AIG greatly and this deal is another sign of Duperreault’s search for growth at the insurer, while the access to business and synergies between AIG, Validus and AlphaCat could result in some efficiency gains and a platform for ongoing expansion into reinsurance and specialty markets.

The transaction is expected to close mid-2018, once all approvals have been received.