AlphaCat upside potential “very positive” – AIG CEO Brian Duperreault

AIG’s Brian Duperreault is “very positive” about the growth potential for AlphaCat Managers following the company’s proposed $5.56 billion takeover of Validus Holdings, underlining the “tremendous” potential for upside.

Global insurance giant AIG announced recently that it will acquire all the outstanding common shares of Validus Holdings for almost $5.6 billion, which includes taking control of the Validus third-party and insurance-linked securities (ILS) investment management unit, AlphaCat Managers (AlphaCat).

Discussing the transaction during a dedicated investor call, AIG executives explained that reinsurance will now account for around 3% of its business, and President and Chief Executive Officer (CEO) of AIG, Brian Duperreault, expects the reinsurance segment to grow at its own pace, but added that he believes AlphaCat “has great growth potential.”

Currently, AlphaCat has assets under management (AuM) of $3.4 billion ($3.2 billion of which is from third-party investors), and Duperreault said he thinks the combined AIG and Validus entity can attract assets and feed those with the appropriate risks.

“There’s tremendous potential for big upside here, I’m very positive about this one,” said Duperreault, adding that while he anticipates growth within this segment, he didn’t want to speculate on the actual size of growth.

During the call both Duperreault and Peter Zaffino, AIG’s CEO of General Insurance, were questioned on the state of the property catastrophe reinsurance market, and whether AIG would expand here following its acquisition of Validus.

Zaffino explained that through both Validus Re and AlphaCat the firm will be able to capitalise on opportunities in the space, while Duperreault added that he thinks the property catastrophe space is reasonably priced and, by and large, has “held itself at reasonable to very good levels on equity and on risk, it’s a very disciplined group and I don’t see that changing.”

Duperreault said that unlike when he first entered the reinsurance market, there is now a lot more capital, but stressed that reinsurance isn’t going away, and that property catastrophe reinsurance is “absolutely necessary” for all in the business.

“The question is how you shape your offering to match the kind of capital that is out there. And in Validus we have a company that does that well, using AlphaCat and using retro, and the skill set doesn’t go away,” said Duperreault.