AIG to Buy Bermuda Reinsurer Validus for $5.6B in Cash, Reversing Retrenchment

By , and | January 22, 2018

Eight months after Chief Executive Officer Brian Duperreault took over and began to undo his predecessor’s retrenchment strategy, the company announced a $5.56 billion, all-cash deal to purchase Bermuda reinsurer Validus Holdings Ltd., its largest standalone acquisition in 17 years.

In the nine years before Duperreault became CEO, AIG sold assets totaling roughly $100 billion to help repay a government bailout and restructure operations. The Validus takeover gives Duperreault’s firm a reinsurer, a crop-insurance business and a Lloyd’s of London operation. AIG was in talks last year to buy Voya Financial Inc., in a transaction that valued the insurer at more than $10 billion, before negotiations fell apart in November over price.

Validus “brings us skills we don’t have,” Duperreault, 70, said Monday on a call with analysts. The CEO, who gained a reputation as a dealmaker as head of three other companies, said the purchase gives AIG “capital, cash flow and underwriting opportunities to deliver profitable growth.”

The deal may also help AIG end a streak of declining annual revenue, which probably fell for a fifth straight year in 2017. Duperreault has previously said he would consider transactions in areas such as life insurance, international markets, personal lines and small- to middle-market U.S. firms.

The Validus deal also gives AIG a Lloyd’s of London operation, a business the company exited in 2016.

“It’s an important strategic asset to any general-insurance company,” Duperreault said of the London operations, adding that there’s almost no overlap between the two insurers. “There are a lot of pieces to this company that fit us perfectly, like a glove.”

2001 Deal

The acquisition is AIG’s biggest since its 2001 agreement to buy American General Corp. for $23 billion to push further into life insurance, according to data compiled by Bloomberg.

Validus stakeholders will get $68 a share, the companies said in a statement Monday, or about 46 percent more than the stock’s closing price on Friday. The acquisition will immediately start adding to AIG’s earnings and return on equity, they said.

Validus CEO Ed Noonan will retire after a transition period, according to people familiar with the matter who asked not to be identified discussing his plans.

Duperreault last year recruited Marsh & McLennan Cos. executive Peter Zaffino to oversee general insurance. Monday’s deal will increase net premiums written for that unit by 11 percent, according to a company presentation. The acquisition also pushes AIG into reinsurance, an operation that Duperreault said will also expand along with Validus’s AlphaCat, a $3.4 billion investment adviser.

‘White Space’

“We have a lot of white space,” Duperreault said. “I’ve been involved in running reinsurance companies or advising them for a long time. And I particularly like the reinsurance business as additive to what we do.”

AIG shares slipped 0.9 percent to $61 at 9:35 a.m. in New York, while Validus surged 44 percent to $67.49.

“While the AIG shares may initially trade down on the reinsurance exposure it is acquiring — we would be buyers as we focus on the accretion from this transaction,” Elyse Greenspan, an analyst at Wells Fargo & Co., said in a note to clients. “AIG will still have excess capital after this deal is done.”

The acquisition includes the Bermuda-based firm’s Western World U.S. specialty property and casualty underwriter and Crop Risk Services, which provides coverage to the crop-insurance market.

North American insurers have been expanding in specialty business lines to counter tougher pricing competition on consumer and traditional property coverage. Prem Watsa’s Fairfax Financial Holdings Ltd. agreed in late 2016 to buy Allied World Assurance Co., and Boston-based Liberty Mutual Holding Co. completed the purchase last year of Ironshore Inc. from Fosun International Ltd. for about $3 billion.

Greenberg’s Role

Validus, which had a market value of about $3.71 billion on Friday, provides protection for primary insurance companies that focuses on catastrophe, marine and specialty reinsurance, according to the statement. The company was formed in the wake of Hurricane Katrina with backing from a private equity firm run by Jeff Greenberg, the son of Maurice “Hank” Greenberg who ran AIG for decades before stepping down in 2005.

“There are still things I would like to add to the company to balance it out that would be great strategic fits,” Duperreault said on the call with analysts. “There would be other things that I would be interested in over time,” he said, without getting more specific.

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