AM Best has commented that the Credit Ratings (ratings) of RenaissanceRe Holdings Ltd. (RenaissanceRe) (Bermuda) [NYSE: RNR] and its various affiliated entities are unchanged following RenaissanceRe’s announcement from May 22, 2023, that it had entered into a definitive agreement to acquire the treaty reinsurance business of American International Group, Inc. (AIG) (headquartered in New York, NY) [NYSE: AIG].
The business to be acquired by RenaissanceRe includes Validus Reinsurance Ltd. and its consolidated subsidiaries; AlphaCat Managers Ltd. and its managed funds; and all renewal rights to the assumed reinsurance treaty unit of Talbot (collectively referred to as Validus Re). RenaissanceRe will pay approximately $2.99 billion in total considerations, including $2.74 billion of cash and $250 million of RenaissanceRe common shares. The cash portion of the transaction is expected to be funded through a combination of current balance sheet resources supplemented by equity and senior debt issuances.
Assuming that the acquisition is completed as currently contemplated, AM Best does not expect its execution to result in any immediate changes to RenaissanceRe’s credit ratings. While the incremental debt issued will result in a temporary elevation in RenaissanceRe’s financial leverage ratios, AM Best expects that the company’s financial leverage will remain within tolerance levels for its current rating levels. AM Best also projects that RenaissanceRe’s financial leverage will return to previous levels within a reasonable time frame due to earnings-based capital retention. If financial leverage is sustained at elevated levels for longer than currently contemplated, or if the terms of the financing differ materially from current expectations, then AM Best could revisit the transaction’s impact on RenaissanceRe’s overall credit profile.
The strategic rationale for the transaction appears sound as it immediately will enhance RenaissanceRe’s already strong market position in many business lines in which the company already successfully participates. AM Best views the associated integration risk as mitigated by Validus Re’s relatively lean operating platform and notes that under the terms of the transaction, RenaissanceRe assumes just a small share of any future unfavorable (or favorable) reserve development on the business being acquired. AM Best may contemplate rating action if the terms and conditions of the proposed deal change materially, or if there is a significant deterioration in risk adjusted capitalization or operating performance that is not expected at this time.
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