Global insurance and reinsurance carrier American International Group, Inc. (AIG) has reported a slight decline in income earned from the insurance and reinsurance linked fund operations of ILS manager AlphaCat in the second-quarter.
The insurance-linked securities (ILS) operations of AlphaCat Managers, which looks after roughly $4.1 billion of assets invested across catastrophe bonds and other collateralized reinsurance contracts in fund vehicles, appear to have taken a slight hit in the quarter, likely from the continued impact of loss creep.
The income that AIG reported from the ILS and collateralized reinsurance operations at AlphaCat Managers for the second-quarter is down slightly on the first, with the cause of the decline being a small negative investment result.
AIG has reported a -$1 million net investment loss from AlphaCat for Q2 2019, down from a positive investment income of $1 million in the prior quarter.
However, AIG’s income from AlphaCat operations was still positive, as $8 million of miscellaneous income from the AlphaCat ILS operations was earned in Q2, the same level as in Q1 of this year.
It’s safe to assume that if loss creep is the cause of the decline in AlphaCat investment income then it’s likely to have largely come from Japanese typhoon Jebi.
Given the loss creep still being reported at the mid-year by many of the world’s leading global insurers and reinsurers, it would be no surprise if this had depressed the returns of the AlphaCat ILS fund operations during the last quarter.
During the last quarter AlphaCat Managers total insurance and reinsurance linked assets under management also shrank slightly, falling from $4.2 billion at March 31st to $4.1 billion at June 30th 2019.
Again, this decline is to be expected, as ILS fund managers like AlphaCat deal with loss impacts and ongoing loss creep from prior years and also settles losses from those heavy catastrophe years as well.
The hope will be that the platform has now dealt with most of the loss creep, although the latest results from re/insurers might imply there is a little further to go on Jebi, meaning that while this accident year remains relatively free of major catastrophe losses ILS units like AlphaCat should deliver increasing levels of income going forwards.