AIG’s new Lloyd’s syndicate – a reinsurance sidecar to its private client book

American International Group, Inc. (AIG) officially launched its latest syndicate at Lloyd’s yesterday, with Lloyd’s Syndicate 2019 set to be the largest ever launch in that market with a target for around $1 billion of gross premiums to be written.

Not only is it the largest syndicate to launch in the Lloyd’s market, syndicate 2019 will also provide a unique opportunity for third-party investors to access the returns of AIG’s Private Client group underwriting of high net worth business.

Syndicate 2019 will exclusively provide reinsurance to AIG’s Private Client Group (PCG) portfolio of risks, a division of the insurance giant that holds a leading market position in the attractive to access High Net Worth segment.

“Significant capital support has been received from high-quality investors and capacity providers, which is a testament to the quality and growth potential of the PCG franchise,” AIG said.

Adding, “For Lloyd’s and the third-party investors and capital providers, Syndicate 2019 represents a compelling opportunity to access the highly attractive High Net Worth segment.”

Peter Zaffino, President & Global Chief Operating Officer, AIG added, “Syndicate 2019 is a unique and industry-defining structure between AIG and the oldest insurance market in the world. Our partnership with Lloyd’s will materially benefit PCG’s clients and enable our High Net Worth business to further capitalize on its pre-eminent market position.

“For AIG, this transaction represents a continuation of our strategy to optimize our General Insurance portfolio, create additional products for clients, diversify our capital base, and improve the quality of our earnings to drive value for all our stakeholders.”

Syndicate 2019 will provide reinsurance to support the AIG Private Client Group offering, which includes high net worth homeowners, auto, collections, yacht, personal umbrella and specialty coverage for earthquake, excess flood and workers compensation insurance coverages.

It’s likely the syndicate will enter into a quota share reinsurance arrangement with the AIG Private Client Group book to source its risks to begin at least.

In the reinsurance market, the Private Client Group risks are more typically ceded as part of the overall reinsurance arrangements of the insurer, so this could be the first opportunity for third-party investors to exclusively support this type of risk from the underwriter.

It’s worth noting though, that the Private Client insurance business has, of late, been seen as a source of significant catastrophe losses for AIG, with CEO Duperreault himself calling it an unexpected area of trouble in catastrophe prone years.

Duperreault said at the time that the private client insurance book suffered “disproportionately large” losses as well as accumulations of insured values being hit by specific catastrophe events in recent years.

High costs from reinsurance and reinstatement premiums may have been part of the motivation for looking to a way to cede risks away from its own balance-sheet, with the support of external capital providers, something this new syndicate structure at Lloyd’s will achieve for AIG.

The syndicate will act as a kind of sidecar for AIG’s private client book of business, bringing institutional quality capital from third-party investors, as well as other capital providers, to support the reinsurance of this catastrophe exposed portfolio.