AIG to Divest Majority Stake In Fortitude Re for $1.80bln

AIG to Divest Majority Stake In Fortitude Re for $1.80bln
November 27, 2019


The insurance giant American International Group Inc (NYSE: AIG), which lost $99.20 billion in the 2008 financial crisis and received $182 billion bailout from the government, has divested a major portion of its ownership in reinsurer Fortitude Re to Carlyle Group, a buyout fund, and T&D Holdings, a Japanese Insurer, for roughly $1.80 billion. Following the news of divestment, AIG shares closed almost flat at $53.16.

New York based AIG, which had more than $1 trillion assets under management before the 2008 financial crisis, continues to divest non-core business. As a part of restructuring, the company sold 76.6% of its ownership to the aforementioned entities. Following the divestment deal, AIG will be left with a stake of mere 3.5% in Fortitude Re, while Carlyle’s ownership will increase to 71.5%, from roughly 19.9%. T&D will own 25% of Fortitude Re, which was earlier known as DSA Re.

Under the deal, AIG is also eligible for a $500 million non-pro-rata distribution. If the amount is not paid by the 13th of May 2020 or transaction close, Carlyle-managed fund and T&D will have to shell out additional payment based on their stake in the reinsurance business. The divestment deal is anticipated to be completed in mid-2020, subject to regulatory approval and other usual closing terms and conditions.

The deal is expected to take forward AIG’s and Carlyle’s attempt to transform Fortitude Re into a standalone entity that provides retroactive reinsurance and legacy run-off administration solutions.

Through guidance from the three shareholders, the Bermudian reinsurance company will look for valuable acquisitions across the globe and process legacy insurance portfolios.

In 2017, AIG founded Fortitude Re as a Bermuda headquartered composite reinsurer to hold the latter’s residual assets in a distinct well-funded balance sheet. The legacy assets composed of insurance resources associated with AIG’s closed business divisions including life insurance, and commercial property and casualty.

T&D representative Director and President Hirohisa Uehara shared his enthusiasm regarding the investment in Fortitude Re. Uehara said, “We are really honored to invest in Fortitude Re, which has developed a sophisticated platform for managing life and P&C insurance liabilities. We have long standing relationships with both AIG and Carlyle, and we believe Fortitude Re’s closed book business will contribute significant synergies to our domestic life insurance business as well as diversification of our business portfolio.”

Carlyle co-CEO Kewsong Lee highlighted his company’s ability to increase shareholder value through valuable acquisitions. Lee said, “This transaction demonstrates Carlyle’s strategy of developing scalable platforms to drive shareholder value. Fortitude Re, led by CEO James Bracken, is strongly positioned as an industry leader in managing run-off insurance liabilities, and Carlyle looks forward to partnering with the management team to help Fortitude Re grow.”

Willkie Farr & Gallagher is acting as a legal adviser to AIG. Likewise, Debevoise & Plimpton serves as legal advisor to Carlyle, while Oliver Wyman performs the role of financial adviser. Citi acts as financial advisor to T&D, while Nishimura & Asahi, King & Spalding and Appleby provide legal advice. The divestment news is expected to keep the stock range-bound with a slight bullish bias.

Technically, the stock remains range-bound between 52.50 and 56.50. The stochastic RSI indicator is rising out of the bearish zone. Therefore, we can expect the stock to appreciate and move towards the upper band of the trading range.

aig - technical analysis - 27th Nov 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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