AIG buys new property reinsurance treaties, plus aggregate retro via Validus

Global insurance and reinsurance carrier American International Group, Inc. (AIG) continued to bulk up its reinsurance protection in the second-quarter of the year, adding two new property treaties and an aggregate retro arrangement through Validus.

Speaking during the carriers earnings call just now, AIG’s CEO of General Insurance Peter Zaffino explained that the company added further reinsurance protections, as it continues to evolve its program to enhance coverage against volatility in its results.

He said that AIG has been enhancing the quality of its underwriting, while evolving the structure of its reinsurance programs and adding disciplined end-to-end business processes, all as part of its mission to stabilise results.

The second-quarter results reported by AIG showed a second consecutive quarter of underwriting performance improvement, which suggests some of the actions are already having an effect.

Among these, the restructuring of the reinsurance program has been key, as AIG now relies on much more reinsurance protection than it did a few years ago, particularly against property and catastrophe related exposures.

“Reinsurance plays a critical role in managing volatility,” Zaffino explained, going on to describe the latest additions to its program

In the second quarter AIG purchased two additional property treaties, Zaffino said, which were both placed below its property catastrophe coverage.

In addition, a new aggregate retro treaty was also purchased via Validus Re as well.

Zaffino only explained further details on one of the property treaties, a dual coverage reinsurance arrangement covering the Caribbean and Hawaii.

He said the attachment points are $200 million for the Caribbean and $100 million for Hawaii, with the treaty having a shared limit of $325 million across the two regions.

It’s clear the mission to reduce volatility continues, as evidenced by the kind of additional treaties being purchased.

The aggregate coverage, on which it’s not exactly clear whether it’s just a pure reinsurance agreement between AIG and Validus, or whether it is retroceded elsewhere, will also serve to reduce the impact of multiple smaller catastrophe and property loss events over the year ahead for AIG, providing further earnings protection for the insurer.

It’s also not clear whether there’s any third-party capital involved in these, but it is possible that the aggregate treaty with Validus may tap into the capacity provided by the AlphaCat Managers ILS operations as well.

Zaffino said, “We will continue to enhance the reinsurance program moving forward.”

Brian Duperreault, CEO of AIG commented at the end of the call, “I would say the basis of our philosophy around reinsurance is geared to addressing exposures that we feel we should share, because of volatility, but as it evolves we will adjust our program accordingly.”