American International Group, Inc. (AIG) has reported its first quarter of earnings since the acquisition of Bermudian reinsurance and third-party capital management firm Validus and the insurer gives some visibility of what looks like an improved amount of income earned through the AlphaCat Managers ILS fund activities.
AIG reported that through the AlphaCat Managers insurance-linked securities (ILS) fund management business it has recognised roughly $5 million of net investment income and $6 million of miscellaneous income during the third-quarter of 2018.
That investment income figure is down on the one reported by Validus in Q2, but aligned with the Q1 number. The miscellaneous income appears an additional disclosure, perhaps representing the full impact of the AlphaCat business including profit shares and any commissions.
At $11 million, for a quarter when there were catastrophe losses and also further deterioration of the 2017 hurricane loss from Irma, this figure appears robust and it will be interesting to see how that develops going forwards.
We don’t have a disclosure of AlphaCat AuM from AIG, or the useful breakdown of ILS fund assets and distributions to AlphaCat’s investors that Validus’ reporting used to provide, which is a shame as it will make it harder to report on the units progress.
At this stage it’s difficult to tell what kind of impact the higher risk AlphaCat ILS funds may have suffered from third-quarter 2018 catastrophe loss events, such as hurricane Florence and typhoon Jebi, but it seems likely some level of attrition will have been experienced.
AIG did disclose Validus’ loss experience during the quarter, saying that the Validus book of business suffered net catastrophe losses of $200 million during the period, largely from the loss activity in Japan.
Being net losses, this figure will be after any cessions through to retrocessional reinsurance providers and we assume also after cession of any attrition to the AlphaCat ILS fund strategies.
As a result there may have been some impacts for the AlphaCat investors in Q3, albeit not significant. With hurricane Michael set to impact the fourth quarter for many ILS strategies it will be interesting to see how AIG reports its income from the ILS operations at its next results.