AIG Re not “an index of the market” in property cat: Zaffino & Lyons

AIG Re, the global reinsurance arm of American International Group (AIG), pulled-back on its writings of peak zone property catastrophe risks at the January 2022 renewals, as the company did not feel the risk-adjusted returns were adequate.

Having explained how the company achieved significant improvements to its own outwards reinsurance program at the January 2022 renewals during AIG’s earnings call yesterday, executives went on to discuss the inwards side.

AIG Re encompasses the Validus reinsurance brand in Bermuda as well and while rates were seen to improve at 1/1, it was not sufficient for AIG to build on its stake in property catastrophe risks.

CFO of AIG Mark Lyons said that, “The AIG Re portfolio strategically took the opportunity to further de-risk and rebalance the portfolio away from property cat, due to our view of less than adequate returns in that space.”

Lyons added that AIG Re elected to grow further into casualty and specialty lines of reinsurance instead, saying that he expects the reinsurance underwriting unit of AIG will “continue that trend.”

AIG CEO Peter Zaffino went into more detail and explained that AIG, while big enough, did not want to become an “index of the market”, preferring to be more selective instead.

“On AIG Re, we’ve significantly reduced our aggregates in peak zones at 1/1. We didn’t think that risk-adjusted returns were there,” Zaffino said.

He carried on to explain that, “As Mark alluded to, we lowered in the majority of our return periods, in the frequency-severity tail, significantly reducing our net PML’s.

Zaffino said that this means AIG Re has “a lot of ability, depending on what happens in the market, in the future, to be able to be responsive,” suggesting that if rates continue to improve in property catastrophe reinsurance, the company could elect to write more.

Importantly though, Zaffino said that, “We were not going to be an index of the market and I think we were very conservative at the AIG Re level, in terms of that deployment.”

CFO Mark Lyons went on to give more detail on the size of the pull-back, saying that, “Limits deployed in US property were down about 10%.”

Finally, Lyons also added that AIG Re is better protected as well, saying that, “The retrocession program provides $1 billion of protection, with peak US zone PML’s down meaningfully across most points in the return period curve.”

As AIG and AIG Re’s appetites for writing peak-zone catastrophe exposed risks adjusts, it could provide more opportunity to the company to leverage its third-party capital manager AlphaCat and bring insurance-linked securities (ILS) structures alongside its writings, to further manage PML’s.

Also read:

AIG achieved “significant” reinsurance improvements at 1/1 renewal: Zaffino.

AIG’s AlphaCat lifts ILS assets under management to $3.6bn.