AIG’s Zaffino: Expect very late renewals, no FOT’s for quite some time

AIG CEO Peter Zaffino explained that the market should anticipate a “very late” reinsurance renewal season at the end of this year, with firm-order-terms (FOT’s) unlikely to be seen for “quite some time” yet.

Speaking during the American International Group (AIG) third-quarter earnings call today, CEO Peter Zaffino went into some detail on reinsurance market conditions, saying that capacity problems will be a significant issue and that in particular the state of the retrocession market will be an added challenge for re/insurers.

He explained that even before hurricane Ian, challenges were evident when it comes to renewing reinsurance.

“If you believe, as we do, that the retro market was already contracting from last year’s available capacity, which itself was reduced from the prior year, and the anticipated capital for 2023 was already going to further contract approximately 10%, the retro market and the property cat market were already being challenging prior to Ian,” Zaffino said.

“In addition to reduced capacity over 2022, prior to Ian, there was also an expectation of increased retentions, more specific peril coverage, as well as rate increases resulting from several factors, including increased frequency and severity of cats over the last several years,” he added.

Because of this and other macro factors, plus the even more evident issues related to Florida, “Available reinsurance capacity is forecasted to be the lowest aggregate limit available in over a decade, making conditions in the property cat reinsurance market even more challenging,” Zaffino explained.

But the AIG CEO believes his company is well-positioned, with its long reinsurance relationships and also evident improvements it has been making to its own portfolios of risk.

Zaffino continued, “While Hurricane Ian will have an impact on the broader insurance, reinsurance and retro markets, we believe AIG is well positioned.

“Very importantly, we have strong and strategic relationships with our major reinsurers, we are confident in our ability to obtain similar levels of capacity for 2023 as we did in 2022.

“In addition, we’ve improved and continued to improve our portfolio and therefore the reinsurance we require will reflect this during 2023.”

All of which will lead to a particularly challenging renewal season in 2023, as reinsurance market factors play into the ability of companies to secure their necessary coverage.

Commenting on expectations for the upcoming reinsurance renewals, Zaffino said, “No matter who you speak to, the truth will be, it’s going to be a very late renewal season.

“Retro needs to be put together. Nobody’s quoting now. There’s not gonna be any firm-order-terms for quite some time and I think we’re just gonna have to work through the market.

“But I just don’t think that AIG is going to be in a detrimental position, based on our portfolio structure, market share, and actually our performance and I think the reinsurers would say, you’d have to ask them but what they tell me is that, we’ve exceeded expectations on all the variables in terms of the commitments we made in terms of the underwriting and that’s on property and casualty. So I think we’ll be very well positioned.”

Zaffino also believes that AIG has growth opportunities as well, given its strong balance-sheet position and ability to capitalise on market dislocations.

“We see significant growth opportunities across the market, especially in the near-term and for property specifically,” he explained. Adding that, for AIG, “Our significant financial flexibility will allow us to be nimble as we deploy capital at attractive risk adjusted returns to retail property, wholesale property, Talbot, global specialties and AIG Re.”