American International Group (NYSE: AIG) on Monday said it would buy property and casualty reinsurer Validus (NYSE: VR) for $5.56 billion in cash to strengthen its reinsurance business, the company's first deal under Chief Executive Brian Duperreault.
Duperreault, who replaced Peter Hancock last year, is seen as a turnaround expert and has promised to streamline AIG's operations and improve its financial performance.
Said Duperreault “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.”
AIG's $68 per share offer represents a 45.5% premium to Validus' Friday close.
Validus, through its subsidiaries, offers crop insurance, and property and catastrophe reinsurance. Its Lloyd's of London syndicate business focuses on specialty insurance.
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.
The Validus deal is expected to close in mid-2018 and immediately add to AIG's earnings per share and return on equity.
Shares of Bermuda-based Validus were trading up $20.77, or 44.5%, to $67.49, several hours after the opening bell. AIG shares were down 51 cents to $61.04 in Monday trading.
