AIG reports AlphaCat assets slip to $3.3bn, as Ian delivers ILS investment losses

Insurance giant American International Group (AIG) reported that assets under management at its AlphaCat Managers insurance-linked securities (ILS) and collateralized reinsurance investment manager, fell slightly to $3.3 billion at the end of the third-quarter, while investment losses from hurricane Ian are also evident.

When we last reported on AlphaCat Managers, the ILS fund strategies it operates had $3.4 billion of overall assets under management, $3.2 billion of which was from third-party investors, as of the mid-point of 2022.

Over the third-quarter, total AuM managed by AlphaCat Managers in its ILS funds had slipped to $3.3 billion, but the third-party portion continues to be reported at $3.2 billion by AIG.

Interestingly, this shows the gap between AIG’s own investment into AlphaCat’s ILS strategies and the third-party capital they hold has narrowed, with AIG’s share shrinking more significantly, it seems. There may also have been some fresh capital that came in from third-parties during the period, which could also explain the gap narrowing somewhat.

There is evidence of hurricane Ian’s catastrophe losses in the quarterly disclosure on AlphaCat’s ILS fund operations from AIG.

AIG reported that hurricane Ian delivered roughly $450 million of catastrophe losses, out of a quarterly total of $600 million from Q3 2022. These appear to be net of reinsurance recoveries, given the quantum is relatively low for a carrier with the scale of AIG.

AIG did say that the results of its General Insurance division reflect its efforts to put in place a “best-in-class reinsurance program” which helped to reduce volatility in its results and said that “comprehensive reinsurance programs that mitigated CAT exposure” in Q3, suggesting there are likely relatively significant reinsurance recoveries at work here.

But with catastrophe losses of this magnitude, there was always going to be implications for the AlphaCat Managers ILS fund strategies as well.

It’s most evident in the losses from direct investment activities that AIG reports for the AlphaCat unit.

While fee income earned from asset management activities undertaken by AlphaCat Managers is reported as $5 million by AIG, the same as the prior quarter, direct investment losses were $26 million for the period.

As a result, overall net investment expense reached $21 million for AIG from the AlphaCat businesses, which reflects the performance hit caused by hurricane Ian and any other catastrophe losses to which AlphaCat ILS strategies might have been exposed during the quarter.

Third-party investors will naturally have taken their share and it will be interesting to see how AuM fluctuates over the coming quarters, as hurricane Ian’s loss quantum is eventually worked out and losses from the major event stabilise.

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