AIG evolves reinsurance, AlphaCat helps cut Florida exposure: Zaffino

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American International Group (AIG) has continued to evolve its reinsurance business, both on an outwards and inwards basis, as the insurance giant secured new reinsurance protection at the middle of the year, while its ILS specialist unit AlphaCat has helped it lower its exposure to Florida property catastrophe risks, according to President and CEO Peter Zaffino.

peter-zaffino-aigSpeaking during AIG’s second-quarter earnings call today, Zaffino gave an update on the actions being taken to both better protect AIG, while reducing its peak catastrophe exposure at the same time.

These adjustments come on the back of significant work to evolve the portfolios of risk constructed by the AIG General Insurance division, which includes its AIG Re and Validus entities, as well as its insurance-linked securities (ILS) and collateralized reinsurance investment manager, AlphaCat Managers.

Zaffino explained that, “We continue to evolve our reinsurance program to reflect our significantly improved portfolios.”

He went on to say that at the mid-year reinsurance renewals AIG successfully placed around 25 layers of risk across a variety of treaties.

“We were able to enhance our terms and conditions, with pricing flat or down,” across all of these placements, Zaffino said.

Seemingly, based on Zaffino’s commentary, despite the firming of reinsurance markets AIG’s strategy of adjusting its program and its results over recent quarters are helping the company secure attractive execution for its placements.

He further explained that, “In property cat, we further reduced our attachment point in North America through several buy-down layers on treaties.”

That effectively reduces where AIG’s catastrophe reinsurance attaches, providing more robust protection to the insurer.

He also explained that AIG’s Bermuda based reinsurance operations under Validus also added moree protection at the mid-year.

“Validus Re secured more retrocession protection,” he said, which was specifically related to its exposure to US wind, Asia wind and California earthquake risks.

On the written reinsurance side, AIG Re increased its net premiums by over 30%, while also attracting rate increases of up to 25% in some areas of the business.

In particular, rate improvements were seen across all US property catastrophe segments, Zaffino said.

However, Florida is one peak zone where AIG is managing its PML’s more closely and here its insurance-linked securities (ILS) specialist investment unit AlphaCat Managers has assisted.

Zaffino said that, working in coordination with AlphaCat, Validus Re’s net limits in Florida were reduced by approximately 40%, which suggests the company leveraged the efficient third-party capital that AlphaCat’s range of ILS funds and structures provides to house some of these risks that met AlphaCat’s risk appetite.

As well as being pleased with the new reinsurance arrangements secured, Zaffino said that overall, “We’re very pleased how AIG Re has evolved.”

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