AIG To Acquire Validus For $5.56 Billion In Cash

January 22, 2018

[Updated] American International Group will acquire all outstanding common shares of Validus Holdings, with the company saying that “holders of Validus common shares will receive cash consideration of $68.00 per share, for an aggregate transaction value of $5.56 billion, funded by cash on hand.”

“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,” said Brian Duperreault, President and Chief Executive Officer of AIG.

“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, 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, said, “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 transaction has been unanimously recommended by the boards of directors of AIG and Validus, the company said, explaining that the “transaction is expected to close mid-2018, subject to approval by Validus shareholders and other customary closing conditions, including regulatory approvals in relevant jurisdictions and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.”

Update 2.58pm: Fitch Ratings affirmed the ratings of AIG following the company’s announcement today of a planned acquisition of Validus Holdings.

The ratings agency said, “The acquisition provides AIG with profitable underwriting platforms in several segments that are distinct from existing operations.

“Validus is a Bermuda-based [re]insurer with written premium volume of $2.5 billion through the first nine months of 2017, and underwriting operations in reinsurance, the Lloyds market, and U.S. specialty insurance. The company has developed sophisticated underwriting and modeling capabilities and has a history of favorable underwriting profits.

“The Validus purchase is representative of a strategic shift at AIG following the hiring of CEO Brian Duperreault in May 2017, which led to a move towards deployment of earnings into existing businesses and new external growth opportunities, compared with the prior strategy of returning substantial capital through share repurchases.

“The all-cash transaction will be funded from available holding company resources. AIG’s pro forma financial leverage ratio adjusted for FAS 115 is estimated to remain below Fitch’s rating sensitivity level of 28% following the close of the transaction and any near term reduction in shareholders’ equity from deferred tax asset revaluation due to recent U.S. tax reform legislation.

“AIG’s Rating Outlook has been Negative since February 2017, and is reflective of financial performance that is below ratings expectations, driven largely by large loss reserve development charges in the Commercial Insurance segment that contributed to a full year 2016 GAAP net loss of $849 million.

“Measures to improve underwriting performance and reduce reserve risk within commercial insurance include sharp reductions in casualty business volume that significantly changes product mix, and the purchase of retroactive reinsurance from National Indemnity Company (NICO) on U.S. longer tail business for accident years 2015 and prior that currently has approximately $6.9 billion of coverage remaining for future development in covered segments.

“Management efforts to improve commercial insurance performance were affected in 2017 by substantial catastrophe related losses, including approximately $3 billion of incurred losses from third quarter hurricane events, as well as additional loss reserve development primarily in the 2016 accident year. The overall property casualty GAAP combined ratio was 118.8 for the first nine months of 2017.

“Fitch’s ratings continue to reflect AIG’s P&C subsidiaries’ unique market position in the global insurance market given its absolute size, underwriting capabilities, and consolidated capital adequacy that is comparable to higher rated peers.

“Commercial Insurance strategic actions are also anticipated to lessen volatility near term, and move segment underwriting performance to break-even results going forward. The Validus purchase is anticipated to provide incremental positive benefits to future property/casualty underwriting results.

“Overall operating performance for AIG’s life insurance subsidiaries is stronger and more stable than the property casualty subsidiaries. The ratings of AIG’s U.S. life insurance subsidiaries are driven by these entities’ strong statutory capital position, leading market share in key lines of business, and diversification of revenues from insurance premiums, spread business and fees.”


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