AIG signals minimal change at Validus

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  • Deal agreed: Validus is set to become part of American International Group

    Deal agreed: Validus is set to become part of American International Group


Validus Holdings is likely to operate much as it does now after it is taken over by American International Group in a $5.56 billion deal expected to close later this year.

Brian Duperreault, AIG’s chief executive officer, said in a conference call with analysts yesterday that there was “almost no overlap” between the two companies’ businesses and that the acquisition would be “additive” for AIG.

The insurance market veteran, in a statement penned jointly with Ed Noonan, chairman and CEO of Validus, said: “Because our companies are highly complementary, after closing we expect there to be minimal integration and that Validus will operate largely as it does today but within General Insurance at AIG.

“Clients and brokers can expect the same responsive, solutions-driven approach to which they are accustomed. And, at AIG, we look forward to being more closely connected to Bermuda once again through Validus’s strong presence here.”

Shareholders of Validus got a boost yesterday as the company’s share price rocketed 44 per cent on the day up to $67.29 — just shy of AIG’s $68-per-share offer that has been approved by the boards of both companies.

Other Bermudian insurers rallied as the deal fuelled speculation of further merger activity. Aspen climbed 10.2 per cent, Axis Capital 6.3 per cent, RenaissanceRe 4.4 per cent and Argo Group 3.8 per cent.

AIG said the deal, expected to close in mid-2018, will boost AIG’s management talent, underwriting business and insurance-linked securities capabilities.

Apart from its Bermudian-based reinsurance operation, Validus also owns Lloyd’s underwriter Talbot, US insurer Western World and alternative capital manager AlphaCat.

In Bermuda, the two companies are next-door neighbours, with AIG based at 27 Richmond Road and Validus at number 29.

AIG was unable to provide The Royal Gazette with specifics on any potential impact on jobs in Bermuda, or whether the Validus brand would survive.

Ratings agency Standard & Poor’s said there was “minimal business overlap” between the two, echoing Mr Duperreault’s view. And in a comment that offered hope of a minimal impact on employment, S&P added: “We don’t anticipate revenue or expense synergies.”

Mr Duperreault sang the praises of the executive and underwriting talent at Validus, saying: “They will make us better.”

Reinsurance will make up about 3 per cent of AIG’s business after the takeover. The deal will also give the company a new presence in the Lloyd’s of London market and a platform in the burgeoning insurance-linked securities market. Mr Duperreault singled out AlphaCat as having “great growth potential”.

After the deal is completed, Validus will register as a US taxpayer, said Sid Sankaran, AIG’s chief financial officer.

During yesterday’s conference call, Mr Sankaran said there were tax benefits from the deal related to AIG’s deferred tax assets.

US tax rules allow corporations to use losses in past years to lower taxes on future profits. Validus can take advantage of AIG’s billions of dollars in DTAs, as a US taxpayer.

With the US corporate tax rate falling to 21 per cent from 35 per cent this year, the value of AIG’s DTAs — estimated at around $21 billion last year — are set to be written down. But some observers have said they will still be sufficient to protect AIG from paying US taxes for several years to come.

Mr 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 organisation 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.”

Mr 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.”

One analyst asked Mr Duperreault why he had opted to pay a hefty 1.5-times-book-value premium to buy Validus, instead of repurchasing AIG shares relatively cheaply.

“I believe that acquiring companies that are well managed, with a long-term track record of very profitable underwriting and growth is what I’m going to pursue,” Mr Duperreault responded, hinting at a potential for further acquisitions.

“In the long term, that is much more strategic than buying back stock.”

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Published Jan 23, 2018 at 8:00 am (Updated Jan 22, 2018 at 8:56 pm)

AIG signals minimal change at Validus

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