AIG’s insurance-linked securities income from AlphaCat rises again

American International Group’s (AIG) insurance-linked securities and collateralized reinsurance activities under its dedicated ILS investment manager entity, AlphaCat Managers, delivered higher income for the final quarter of 2020.

While insurance-linked securities (ILS) assets under management remain slightly below their highs for AlphaCat Managers, at $4.2 billion as of December 2020, compared to $4.3 billion a year prior, it’s clear that the impacts of catastrophe losses has been lower, allowing for a much higher flow of investment and fee income to its parent AIG.

ILS assets under management (AuM) was static through the final quarter of 2020, although it is possible AlphaCat raised some funds for the January renewals, but that may not become clear until the next quarters reporting.

A year ago, AIG reported that its AlphaCat Managers unit had delivered $1 million of net investment income and $8 million of miscellaneous income in Q4 of 2019.

This year, the insurance and reinsurance firm reports that its AlphaCat ILS activities delivered it $15 million of net investment income, the highest figure for 2020, beating the $9 million from Q3, $6 million from Q2 and $10 million from Q1.

The net ILS investment income reported for Q4 of 2020 also beats every quarter of 2019 as well, so the last quarter of the year was a far more profitable period for AIG’s AlphaCat ILS and collateralized reinsurance operations, and presumably for its third-party investors as well.

The $15 million of AlphaCat related ILS income from Q4 breaks down as, $8 million due to fee income from asset management activities and $7 million from direct investment activities.

It’s a particularly impressive quarter for the AlphaCat Managers ILS business given that its parent AIG reported that higher catastrophe losses offset the profits of the General Insurance side of its business.

AIG’s General Insurance unit reported $545 million of catastrophe losses, after reinsurance, which included $178 million of losses from the COVID-19 pandemic.

That drove the combined ratio to 102.8% for Q4 2020 for the AIG General Insurance division, a technical underwriting loss and worse than the prior years 99.8%.

The $367 million of weather related catastrophe losses suffered were primarily related to Hurricanes Sally, Zeta, Laura and Delta, AIG said, with its Validus Reinsurance unit taking a share.

On that basis, the AlphaCat ILS strategies, which invest across catastrophe bonds, private ILS, collateralized reinsurance and retrocession, have clearly done well to avoid too much impact from the hurricane activity, meaning they could still deliver AIG their highest income level for some time.