RenaissanceRe targets top five reinsurer spot with Validus Re deal

RenaissanceRe’s acquisition of Validus Re will propel the Bermudian carrier into the top five global property/casualty (P&C) reinsurers, the company said.

The $2.99bn deal, which is expected to close in the fourth quarter of the year, is expected to add around $2.7bn of premiums to RenRe’s portfolio, creating a combined business writing gross premiums of $11.9bn.

This will position RenRe as the fifth-largest P&C reinsurer, moving the company up two places in the league table ahead of Scor and Everest Re.

Bermuda-based Validus Re wrote gross written premiums of $3.08bn in 2022, producing a combined ratio of 94.4%, according to an investor presentation. But RenRe has factored in some reduction in the size of the portfolio in its projections following the acquisition.

It is the third time RenRe has acquired a Bermuda-based competitor, after the Platinum and Tokio Millennium Re deals in 2015 and 2019 respectively.

Speaking to analysts, RenRe’s chief executive, Kevin O’Donnell, said the acquisition was a “unique opportunity” for the business, providing access to an “attractive look of business at what we feel is the perfect time in the cycle”.

“We expect we can fully deploy Validus Re into our portfolio on day one and fully integrate it into our risk management system soon afterwards, diminishing execution risk”
_{Kevin O’Donnell
RenaissanceRe}

“Validus Re has constructed a high-quality underwriting portfolio with a mix of P&C, specialty and credit lines that closely mirrors our own,” O’Donnell said.

“We have deep familiarity with the lines of business it writes in the geographies in which it writes them. We also have all the tools, expertise and platforms necessary to support the business.

“As a result, we expect we can fully deploy Validus Re into our portfolio on day one and fully integrate it into our risk management system soon afterwards, diminishing execution risk,” O’Donnell added.

The projected combined portfolio will be broadly similar in composition to RenRen’s existing portfolio.

Property premiums will amount to roughly 39%, around 36% will be casualty, with the remaining 25% split between specialty and credit.

The combined portfolio will have a higher probable maximum loss on an absolute basis, but will be “flat to down” on a percentage of equity basis, O’Donnell said.

The transaction includes insurance-linked investment manager AlphaCat Managers and the renewal rights to the assumed reinsurance treaty business of Lloyd’s carrier Talbot.

The addition of AlphaCat funds, estimated at around $3.3bn according to Artemis.bm, will expand RenRe’s fee-generating third-party capital division. Following the close of the transaction, AIG will also make “substantial investments” in the Capital Partners business.

Chief financial officer, Bob Qutub, said RenRe also expects to achieve “significant synergies” from the transaction. “The synergies as well as the cumulative impact on each of our three drivers of profit should be highly accretive to our returns,” Qutub said.

Under the deal, RenRe will pay $2.735bn in cash and $250m of its common shares.

RenRe plans to finance the cash portion of the purchase with available funds and proceeds from the issuance of equity and debt, including an offering of 6.3 million shares, announced on May 22. O’Donnell will invest $2.5m of his own funds in the share offering.

No shareholder approval is required for the trans­action to proceed.

At closing, AIG has committed to deliver $2.1bn in unlevered Validus Re shareholder’s equity to RenRe, retaining all capital in excess of that sum.

AIG also expects to achieve future capital synergies of around $400m from the recapture of reserves following the transfer of the Validus Re balance sheet to RenRe, which were valued at more than $1.5bn at year-end 2022.

For AIG, the total estimated transaction value is expected to exceed $4.5bn.

AIG will also retain Talbot Underwriting and Western World, which were acquired along with Validus Re in 2018 and now contribute around $1.6bn in annual gross written premiums.

AIG chairman and chief executive, Peter Zaffino, said the deal “further simplifies our business model and reduces volatility in our portfolio, while generating significant cash liquidity and capital efficiencies”.