AIG’s AlphaCat assets under management fall to $3.5bn

Assets under management at American International Group’s (AIG) insurance-linked securities and collateralized reinsurance dedicated ILS investment manager entity, AlphaCat Managers, have fallen to $3.5 billion by the end of the third-quarter, with some effects from the quarters catastrophes clear in its reporting.

Like the rest of the insurance-linked securities (ILS) market, AlphaCat Managers has felt the effects of major global catastrophe loss events during the period, especially the European flooding and hurricane Ida.

Insurance-linked securities (ILS) assets under management at AlphaCat Managers had reached $4.2 billion at December 31st 2020, but then fell to $3.8 billion by March 31st 2021, with first-quarter catastrophe loss activity, especially the US winter storms, expected one driver of that fall.

At the half-year, AIG did not report any figures for AlphaCat Managers, but now at the end of Q3 2021 the data is back and AIG reported that ILS assets under management fell to $3.5 billion by the end of September.

Of the $3.5 billion of assets under management at September 30th 2021, $3.4 billion was from third-party investors.

It’s safe to assume catastrophe loss activity is one key driver of this decline, given the magnitude of the major loss activity and how it has hit other ILS investment management units.

It’s also evident in the reported income that AIG has earned from AlphaCat Managers during the period, with investment income from the ILS activities wiped out in the quarter and a direct investment loss reported.

For Q3 2021 AIG reports that AlphaCat investment income was zero, down from $6m in Q2, -$7m in the loss hit Q1, $15m in Q4 2020 and $9m in the prior-year equivalent quarter of Q3 2020.

This investment income figure is made up of asset management fee income and income or loss from direct investment activities, that AIG earns from the AlphaCat ILS operations.

Fee income remained robust in Q3 2021, at $7 million, which was higher than the previous two quarters. But the loss from direct investment activities, signalling losses suffered by the AlphaCat ILS strategies, was -$7 million, so wiped out any fee income gains for the period.

It’s notable though that the loss from direct investment activities was much higher after Q1 and the US winter storms, at -$13 million, so it seems that by the end of Q3 the events in the period had actually affected AlphaCat less, which could be a reflection of AIG’s own risk exposure to winter storm Uri, because of the way the insurer leverages AlphaCat in sharing in its risks.

Moving forwards, the focus for AlphaCat and AIG will be on constructing the best portfolio it can for 1/1, at the best reinsurance and retro rates possible, while further integrating the use of third-party capital into its broader insurance and reinsurance business.