Moody’s affirmed RenaissanceRe’s ratings following the announced acquisition of Validus Reinsurance from American International Group, Inc. and it is said that the vision seems to be stable.
RenaissanceRe agrees to acquire Validus Re for $2.985 billion in cash. The company plans to finance the acquisition with a combination of equity, including $250 million in common shares issued to AIG, debt as well as cash on hand. The parties expect to complete the transaction in Q4 2023, pending regulatory approval and other customary closing conditions.
Moody’s Investors Service affirmed the A3 senior debt rating of RenaissanceRe Holdings Ltd. and the A1 insurance financial strength (IFS) rating of Renaissance Reinsurance Ltd.
The acquisition will include Validus Reinsurance Ltd. and its joint subsidiaries, AlphaCat Managers Ltd., and its managed funds, as well as the rights to renew the Talbot syndicate deemed treaty reinsurance business (collectively, Validus Re).
According to Moody’s, the confirmation of RenRe’s ratings is a reflection of the company’s leadership position in the property catastrophe reinsurance market, strong analytical and modeling capabilities, and sound capitalization. The company’s well-diversified reinsurance portfolio also supports the rating.
The acquisition of Validus Re improves RenRe’s position in the global P&C reinsurance sector, making it one of the top five reinsurers based on premium volume and increasing its relevance in the market. RenRe also owns RenaissanceRe Capital Partners, a leading third-party capital platform that provides institutional investors with access to the company’s underwriting expertise while providing RenRe with fee income and expanded underwriting capacity. . AIG intends to make several investments in the combined RenRe vehicles following the closing of the transaction.
Although there are many challenges, including the potential for income and capital volatility arising from the company’s large property catastrophe reinsurance exposures, as well as the company’s exposure to reserve risk from claims that inflation of long-tail casualty reinsurance lines. RenRe’s plan to issue debt to help finance the transaction is likely to increase the company’s consolidated adjusted financial leverage while increasing the company’s financial leverage relative to visible capital which is significant given the goodwill. on the result of the claim.
Moody’s expects RenaissanceRe to reduce its leverage to historic levels over the next few years through growth in retained earnings. Integration risks should be managed because of RenaissanceRe’s favorable experience in previous acquisitions and its expertise in managing risk integrations wisely, especially in property catastrophe reinsurance. In addition, AIG will retain 95% of the increase in Validus Re’s net reserves at closing, reducing RenaissanceRe’s balance sheet risk.
