AIG agrees $400mn ADC with Enstar for Validus reserves

AIG has signed an agreement for an Enstar subsidiary to provide protection against adverse development on the portion of Validus Re’s loss reserves that AIG retains exposure to following the closing of the sale of the reinsurer to RenaissanceRe.

Under the agreement, Enstar will provide $400mn of adverse development cover in excess of carried loss reserves on assumed reinsurance contracts underwritten by Validus Re.

The adverse development cover is expected to become effective upon the closing of AIG’s sale of Validus Re to RenaissanceRe.

“This transaction demonstrates the continued versatility of legacy risk solutions as a source of value creation, and our continued commitment toward sourcing and executing top-quality transactions,” said Enstar CEO Dominic Silvester.

AIG in May announced the sale of Validus Re and AlphaCat to RenaissanceRe for $2.75bn in cash and $250mn in common stock, in a transaction expected to close in the fourth quarter.

On a second quarter earnings call last month, AIG chairman and CEO Peter Zaffino had trailed the Enstar deal by commenting “we will likely purchase an adverse development cover prior to the closing to minimise potential future reserve exposure”.

Zaffino also revealed that AIG decided to purchase additional retrocessional protection for Validus Re at the mid-year renewals.

As part of the transaction with RenaissanceRe, AIG will retain 95 percent of future reserve changes in the portfolio delivered at closing.

Bermuda-based legacy specialist Enstar this year has also announced a $1.9bn loss portfolio transfer (LPT) agreement with subsidiaries of Sydney-based QBE and a A$360mn LPT with RACQ Insurance.