American International Group (AIG) said it would buy Validus Holdings for $5.56 billion in cash.
The deal would help AIG strengthen its reinsurance business. It's the company’s first acquisition under Chief Executive Brian Duperreault.
It snaps a long period of retrenchment for AIG, which was brought to the brink of collapse during the 2008 financial crisis, and comes months after US regulators said it was no longer "too big to fail".
The deal will also help AIG re-enter the Lloyd’s of London insurance market and add new businesses, including crop insurance, at a time when insurers are facing stiff pricing pressure in their traditional businesses.
"I particularly like the reinsurance business as additive to what we do. There are a lot pieces to this company that fit us like a glove," Duperreault said on a conference call with analysts.
Reinsurers play a little-known but important role in the financial industry by assuming risks that are either too large or too unpredictable for their insurance clients to take on their own.
AIG’s $68 per share offer represents a 45.5% premium to Validus’ Friday close.
Shares of Bermuda-based Validus were trading close to the offer price in early trade. AIG shares were down 1%.
AIG has been struggling to grow its topline over the past few years. Revenue fell in three of the last four quarters and the company has been plagued by losses related to prior-year accident claims.
Duperreault, who replaced Peter Hancock last year, is seen as a turnaround expert and has promised to streamline AIG’s operations and boost profitability.
As his first major restructuring action since taking over, Duperreault reorganized AIG into three new units.
The Validus deal is expected to close in mid 2018 and immediately add to AIG’s earnings per share and return on equity, AIG said in a statement.
