Blackstone shows insurance appetite, AIG gets significant new capital

Private equity investment giant Blackstone has once again demonstrated its appetite for access to profit, returns and float from the insurance and reinsurance market by signing an agreement with global firm AIG, which benefits to the tune of $2.4 billion, a new investment partnership and by securing a partnership that could deepen with a leading investment group.

In what AIG CEO Peter Zaffino calls a “cornerstone partnership,” AIG has agreed to sell Blackstone a 9.9% equity stake in its Life & Retirement business for $2.2 billion in an all cash transaction.

AIG has been seeking ways to monetise the Life & Retirement business, potentially through a sale, but this looks a first step in adjusting the ownership and taking on new capital to support this business, while also boosting AIG’s coffers significantly.

This also places Blackstone into the Life & Retirement insurance and reinsurance business, an area other private equity giants like and are involved (think Apollo, KKR etc).

The benefits don’t stop there, as AIG will also enter into a long-term strategic asset management relationship with Blackstone, as part of this partnership deal.

This will see Blackstone managing an initial $50 billion of Life & Retirement’s existing investment portfolio when the equity investment closes, which is set to increase to $92.5 billion over the next six years.

That’s a clear statement of intent from Blackstone and a significant move to source long-term insurance premium float from the life and retirement marketplace.

These arrangements are expected to close in Q3.

Blackstone is also taking a U.S. affordable housing portfolio held by AIG off the insurers hands for approximately $5.1 billion, which will be purchased by the Blackstone Real Estate Income Trust (BREIT).

Monetising this kind of long-term investment, likely at a profit to the original price, frees up more capital for AIG and adds significant firepower.

Peter Zaffino, President and Chief Executive Officer of AIG commented, “Today’s announcement is an important milestone for AIG. Establishing a cornerstone partnership on several fronts with such a highly regarded organization as Blackstone validates the strength of our market-leading Life & Retirement business and provides it with additional growth opportunities, provides AIG with flexibility as we continue to work to separate Life & Retirement from AIG, and results in significant new capital for AIG to deploy to support our capital management priorities.

“AIG has stewarded the Affordable Housing portfolio for more than 30 years. While the highly specialized assets subject to this transaction are attractive investments, they are no longer core to AIG’s long- term investment strategy. We believe Blackstone has the right expertise and commitment to stakeholders to manage these assets going forward.

“We look forward to a productive and value-enhancing partnership with Blackstone as we continue to build momentum on our journey to become a top performing company.”

Jon Gray, President and Chief Operating Officer of Blackstone, will join the AIG Life & Retirement Board of Directors, also said, “We are honored to become AIG’s strategic partner, supporting the growth and success of one the world’s top life insurers as a standalone business. We believe our leading private credit origination platform will play an important role to help meet long-term policyholder obligations while maintaining strong credit quality.”

The partnership seems a significant move, both for AIG and for Blackstone, representing a way for AIG to free capital to do more on the underwriting side of its business (as well as likely to please its shareholders), while Blackstone gets an entry-point into the life, retirement and annuities space, along with a significant bundle of insurance-related assets to invest.