American International Group plans to sell the bulk of Fortitude Re to private equity firm The Carlyle Group and Japanese insurer T&D Holdings for $1.8 billion.

Plans call for a newly created Carlyle-managed fund and T&D Holdings to acquire from AIG a 76.6 percent ownership interest in Fortitude Group Holdings, whose group companies operate as Fortitude Re. The transaction is expected to close in mid-2020, subject to required regulatory approvals and other customary closing conditions.

According to the companies involved, the transaction continues AIG’s and Carlyle’s efforts to stand up Fortitude Re as an independent company and position it as a premier provider of retroactive reinsurance and legacy runoff management products and services for long-dated, complex risks to the global insurance industry.

As well, the transaction is designed to enhance Carlyle’s ability to support Fortitude Re’s growth plans, provide Fortitude Re access to Carlyle’s investment strategies and position it for long-term success. T&D brings additional industry and international expertise to develop Fortitude Re’s strategically differentiated capabilities. With the backing of Carlyle, T&D and AIG, Fortitude Re will pursue global opportunities to successfully acquire and manage legacy insurance portfolios, the companies said.

Brian Duperreault, AIG’s president and chief executive officer, said the deal is another big step in AIG’s strategy to handle its legacy liabilities.

“Today’s announcement is another important step in our strategy to efficiently manage our legacy liabilities by further preparing Fortitude Re for independence while strengthening our balance sheet and maintaining our primary focus on upholding policyholder and regulatory commitments,” Duperreault said in prepared remarks. “Carlyle’s expertise in separating and standing up companies has been invaluable to date, and we look forward to working with their team and T&D, with whom we have a longstanding relationship in Japan, as we continue the separation process.”

After the deal closes, ownership interests in Fortitude Re will include Carlyle and its fund investors at 71.5 percent (including the 19.9 percent stake previously acquired by Carlyle in November 2018), T&D at 25 percent and AIG at 3.5 percent. As part of the sale agreement, AIG will receive a $500 million non-pro-rata distribution, which if not paid by May 13, 2020 or transaction close will result in an additional payment from the new Carlyle-managed fund and T&D based on their Fortitude Re ownership interest.

Kewsong Lee, Carlyle’s co-chief executive officer, said that “Fortitude Re, led by CEO James Bracken, is strongly positioned as an industry leader in managing runoff insurance liabilities, and Carlyle looks forward to partnering with the management team to help Fortitude Re grow.”

Source: AIG, Carlyle Group, T&D Holdings