RenaissanceRe to Acquire American International Group Reinsurance Operations

RenaissanceRe announced it will acquire American International Group’s AIG treaty reinsurance operations, which include Validus Re, AlphaCat Managers, and a portion of Talbot. The purchase price is $2.99 billion, which equates to 1.4 times book value. We like this deal strategically for American International Group. In our view, reinsurance is a very difficult area to develop a moat, and also an area that typically adds volatility to underwriting results. While we don’t believe American International Group’s P&C business currently benefits from a moat, shedding less attractive areas pushes the company in the right direction, in our view. Further, we see the purchase price as reasonable. However, the deal is too small to have a material impact on our $66 fair value estimate, which we will maintain.