AIG’s holdings in AlphaCat ILS funds fully recovered from losses in Q3

The value of American International Group’s (AIG) investment stake in the insurance and reinsurance linked fund strategies managed by its AlphaCat Managers ILS unit has now fully recovered back to the value it gave to them when it first acquired Validus.

As we reported last week, the insurance-linked securities (ILS) operations of AlphaCat Managers grew its assets under management within its reinsurance linked fund strategies to $4.3 billion during the third-quarter of the year.

That return to growth suggested that the impacts of recent years catastrophe losses were increasingly being put behind the AlphaCat strategies, helping it to resume accepting new investor inflows.

The latest data from parent AIG’s quarterly report also reflects an increasing recovery underway.

AlphaCat’s now $4.3 billion of assets are invested across catastrophe bonds and other collateralized reinsurance contracts and had been dented by the significant catastrophe loss events in 2017 and 2018, as those loss events did practically the entire ILS market.

When AIG acquired Bermuda based reinsurance and specialty underwriter Validus it also acquired the ILS specialist unit of AlphaCat and as a result inherited an investment stake in the AlphaCat ILS funds.

AIG had reported the value of this investment stake in the AlphaCat ILS investment funds as $128 million as of September 30th 2018, the first time it reported on this after the acquisition was completed.

Since then, the impact of losses from the late 2018 California wildfires and other catastrophe events, plus loss creep, drove the value down to $116 million as of the end of 2018.

Over the course of 2019, the value of AIG’s investment in the AlphaCat ILS funds has steadily recovered, reaching $125 million at the end of June 2019.

Now, as of the end of September 2019, the value has fully recovered and AIG reports its investments in the AlphaCat ILS funds are back at a valuation of $128 million.

It’s a further sign of the ongoing recovery of ILS assets following the heavy loss years of 2017 and 2018, which will now be helping ILS managers in attracting new inflows of capital from third-party investors, as seen with AlphaCat itself in the last quarter.

As losses are realised and trapped collateral freed, the ILS market is also seeing some return of value where its reserving practices have proven particularly prudent, which is helping to boost some strategies returns in recent months.

The impacts of 2019 catastrophes has not yet fully been reported however, with typhoon Hagibis’ loss impact likely to dent some ILS strategies over the next quarter.

AIG also reported higher income from the AlphaCat ILS operations in Q3 2019, as the investment performance of the AlphaCat funds improved, delivering the parent $8 million of net investment income as well as a reported $8 million of miscellaneous income earned from the AlphaCat operations.