AIG to make “substantial” investment in RenRe’s DaVinciRe and Fontana

As part of the recently announced arrangement that will see RenaissanceRe acquiring AIG’s Validus reinsurance units and its AlphaCat Managers ILS operation, AIG has also taken an option to make what is termed a “substantial” investment into two of the RenaissanceRe Capital Partners vehicles.

As we reported earlier, RenaissanceRe targets further scale and reach with the acquisition of the Validus reinsurance business and Talbot reinsurance book from AIG, while the deal also includes buying the AlphaCat Managers ILS fund management unit.

It’s a significant nearly $3 billion acquisition from RenRe’s side, in terms of cost, while AIG put the total value at $4.5 billion.

There are various other benefits embedded in the arrangement which will extend the partnership between RenRe and AIG after the acquisition has completed, not least of which is a third-party capital investment that AIG expects to make after the closing.

RenRe said that AIG, “expects to make substantial investments in RenaissanceRe’s Capital Partners business.”

AIG expanded on that by revealing that it, “expects to make significant investments in RenaissanceRe’s DaVinci Reinsurance and Fontana Re managed funds through AIG’s Investment portfolio.”

Peter Zaffino, AIG CEO said that these investments will, “allow us to continue to participate in the growth of the reinsurance market with less risk and capital requirements.”

DaVinciRe is a third-party capital strategy focused on catastrophe reinsurance risk but that operates as an equity-backed but balance-sheet sidecar-like vehicle, managed by the RenaissanceRe Capital Partners team.

Fonntana Holdings is RenRe’s most recently launched third-party reinsurance capital backed joint-venture vehicle, that has a focus on casualty and specialty lines of business.

So, together, the investment allocations from AIG make sense as they target much of the reinsurance market operations it is now selling.

Alongside RenRe acquiring AlphaCat Managers, which had roughly $3.3 billion of capital under management at the end of 2022, according to Artemis’s data, these investments from AIG will further boost RenRe’s ILS and third-party capital managed.

That total stood at $6.6 billion at the end of the first-quarter, so adding on AlphaCat and then also any AIG allocations to DaVinciRe and Fontana could see RenRe nearing or even surpassing $10 billion of ILS and related reinsurance third-party assets managed.

RenRe calls these investments an “option”, so they aren’t guaranteed until after the acquisition deal closes.

But the company said on this, “If option is exercised, significant investment in RenaissanceRe Capital Partners vehicles by AIG adds additional underwriting capacity.”

AIG would be added as a new Capital Partners investor, RenRe explained, making substantial investments in DaVinci and Fontana, providing more underwriting firepower to capitalise on the hard reinsurance market, while also raising fee income potential at the same time.

RenRe said that the Capital Partners assets will provide more opportunities to enhance the Validus Re portfolio as it is assumed.

Saying that the, “Validus Re portfolio will benefit from most efficient capital platform in the industry.”

The company expects continued growth in management fee income as a result of this deal, the integration of AlphaCat and the investments from AIG into RenRe third-party capital vehicles.

Overall, the deal seems a win-win for RenRe and in particular its Capital Partners business, which will grow in stature alongside the overall reinsurance company and become increasingly important to it.