Insurance giant American International Group, Inc. (AIG) has “high hopes” for further growth of its insurance-linked securities (ILS) and collateralised reinsurance manager AlphaCat, expecting to see “a lot of demand” for its vehicles at the renewals, Peter Zaffino said this week.
Speaking at the Barclays Global Financial Services Conference on Monday, Peter Zaffino, the President & Global Chief Operating Officer of AIG, said that capital partnerships are increasingly important to AIG.
Discussing the volatility AIG has seen over the years Zaffino said, “Our reliance on reinsurance will continue to be strategic. But I think as we’ve repositioned the portfolio, we’ll be able to do more things with reinsurance over time without taking more risk, and that will give us opportunities for less spend, perhaps, but more strategic purchasing within reinsurance.
“So I think capital management over time will be very important.”
He cited the launch of AIG’s Syndicate 2019 earlier this year, which as we said at the time acts like a form of reinsurance sidecar to the carriers private client book of insurance business.
Zaffino went on to explain that Hudson Structured Capital Management Ltd., the insurance-linked securities (ILS), reinsurance- and transportation- focused investment manager, which partnered with AIG on the launch of Syndicate 2019, is aligned with the company on its investment.
“We brought in Hudson Structured, a capital markets group that wanted to make an investment and also take risk on the portfolio.
“So we’re all aligned in terms of risk sharing. We have multiple partners that have different backgrounds, looking at Lloyd’s and then looking at traditional reinsurers who do whole-account quota shares and then having a capital markets group come in.
“All of that really was quite strategic and now we can grow top line because everyone’s taking a piece of the peak zone exposure, not the entire exposure,” Zaffino explained.
He went on to discuss AIG’s dedicated ILS management unit, AlphaCat Managers, saying, “When I think about other capital market opportunities. We have AlphaCat, which is an ILS fund that has north of $4 billion of AuM that came with the Validus acquisition. We have high hopes to grow that over time and measure it by AuM and think that there will be a lot of demand for AlphaCat at January 1st.”
He also insinuated that further capital markets backed, or ILS style reinsurance arrangements may be in AIG’s plans.
“There’s other ways to set things up similar to that, that might address retro capacity, or may address other needs in the marketplace.
“We’re going to be very nimble with investors because we originate risk, we have excellent underwriting capabilities and the capital markets wants to find risk that has excellent underwriting and modeling, and we think that’s us.”