Swiss Re Insurance-Linked Fund Management

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AIG’s investment in AlphaCat ILS funds recovers more value in Q2


The value of the investment stake of American International Group, Inc. (AIG) in the insurance and reinsurance linked fund strategies managed by its AlphaCat Managers ILS unit continued to recover in the second-quarter of 2019.

alphacat-managers-logoThe insurance-linked securities (ILS) operations of AlphaCat Managers, which currently counts $4.1 billion of assets invested in catastrophe bonds and other collateralized reinsurance contracts, were hit by the significant catastrophe loss events in 2017 and 2018, as they did practically the entire ILS market.

When AIG acquired Validus and so also the ILS specialist unit at AlphaCat, it also inherited the investment stake that the owners had in the ILS funds under the units management.

AIG had reported the value of this investment stake in the AlphaCat ILS investment funds as $128 million as of September 30th 2018, but after the impact of further losses from the California wildfires and other 2018 loss events the value ended 2018 down at $116 million.

With 2019 relatively loss free, the value of AIG’s investments in the AlphaCat funds and investment strategies has had a chance to recover, first with a significant jump back to $124 million at March 31st 2019, possibly because of some revaluation of assets that ended up not exposed to losses, and now reaching $125 million at the end of June 2019.

The recovery clearly slowed, which is likely partly due to loss creep impacts that the AlphaCat ILS funds and investment strategies will have felt so far this year.

But the continued positive movement and recovery back towards their previous high, shows that the value of ILS investments continues to rise even as the fallout of prior year loss activity continues to affect managers.

The AlphaCat ILS funds will likely also still be dealing with an element of trapped capital and side pockets, we imagine, which makes the recovery perhaps more likely to accelerate in months to come when some of those losses get finally realised and any additional collateral can be released back to the funds in question.

It’s a similar story across the ILS sector now, of managers dealing with still pending losses that are yet to be fully realised, which could go on for some months or even a year or more in certain cases. But gradually the losses will be realised and at that time any return of value possible will serve to boost portfolio values and returns for investors, including AIG with its investment in the AlphaCat funds.

As we also reported yesterday, AIG reported a slight decline in income earned from the insurance and reinsurance linked fund operations of ILS manager AlphaCat in the second-quarter, which is possibly due to the impacts of any loss creep during the period.

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