RenaissanceRe Holdings Ltd has entered into a definitive agreement with American International Group Inc to acquire AIG’s treaty reinsurance business, which includes Validus Reinsurance Ltd, in a near $3 billion deal.

The company said the acquisition will create a top-five global property and casualty reinsurer.

Under the terms of the deal, RenRe will acquire Validus Re and its consolidated subsidiaries, AlphaCat Managers Ltd and its managed funds, and all renewal rights to the Assumed Reinsurance Treaty Unit of Talbot.

AIG has committed to deliver at closing $2.1 billion in unlevered shareholder’s equity to RenaissanceRe with any excess to be retained by AIG.

RenaissanceRe will pay approximately $2.985 billion in total consideration, including $2.735 billion of cash and $250 million of RenaissanceRe common shares.

The cash consideration is expected to be funded through RenaissanceRe’s available funds and proceeds from the issuance of common equity and debt.

The shares received by AIG will be valued at the lower of the public offer price for an expected underwritten public offering by RenaissanceRe or the closing price on May 22.

The agreement has been approved by RenaissanceRe’s board of directors.

The transaction is expected to close in the fourth quarter of 2023 and is subject to customary closing conditions and regulatory approvals.

No shareholder approval is required.

As part of the transaction, AIG will retain 95 per cent of the development on net reserves at closing.

In addition, following the closing of the transaction, AIG expects to make substantial investments in RenaissanceRe’s Capital Partners business.

Kevin O’Donnell, president and chief executive officer of RenaissanceRe, said: “This acquisition advances our strategy as a leading global property and casualty reinsurer, providing additional scale, and increasing our importance to customers.

“Furthermore, by gaining access to a large, attractive book of reinsurance business in a favourable market environment, we expect to accelerate our three drivers of profit – underwriting, fee, and investment income.

“Additionally, we are enhancing our relationship with AIG and demonstrating how our consistent, highly differentiated strategy provides us with unique access to large, one-of-a-kind opportunities that create shareholder value. I have deep respect for Peter (Zaffino) and AIG and look forward to extending our partnership.”