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AIG acquires Validus in $5.56bn deal

January 23, 2018

US insurance giant AIG has struck a deal to acquire Bermudian (re)insurer Validus in a $5.56bn cash deal.

The deal values Validus at $68.00 per share, equivalent to 1.53x stated book value at the end of the third quarter and represents a 45.5 percent increase on Validus’ closing share price on Friday 19 January.

With Validus, AIG gains a treaty reinsurer with a focus on property cat, marine and specialty  (Validus Re), an insurance-linked securities asset manager in AlphaCat, a Lloyd’s platform (through Talbot) and a US crop business (Crop Risk Services), as well as expanded US specialty P&C operations through Western World.

“The acquisition of Validus is a significant step towards AIG’s strategy to deliver profitable growth. The acquisition brings a diverse and complementary set of attractive franchises across specialised products and regions,” the firm said.

"Validus has a lot of pieces that fit us perfectly like a glove and that's why I chose it," AIG president and CEO Brian Duperreault said on a call with analysts.

"The people in it are terrific underwriters, management and executives. They make us better,” he continued, adding that Validus “brings us skills we don’t have”.

The transaction marks AIG's return to M&A, reversing a course of retrenchment after Duperreault has signalled plans to expand the business when he took the helm of AIG in May 2017. On a twelve-month trialling basis as of 30 September 2017, Validus reported net written premiums (NWP) of $2.8bn, according to an investor presentation.  The deal will expand an AIG’s general insurance NWP by 11 percent to $28.8bn.

Commenting on the deal, Duperreault said: “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,”

"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.”

Meanwhile, Validus’ chairman and CEO Ed Noonan 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.”

AIG expects the transaction to be immediately accretive to earnings per share and return on equity.

The deal has been unanimously recommended by both company boards of directors and is expected to close in mid-2018, subject to approval by Validus shareholders and other customary closing conditions.