AlphaCat Managers, the insurance-linked securities (ILS) and collateralized reinsurance investment manager entity owned by insurance giant American International Group (AIG), experienced outflows during the second-quarter, as its overall assets under management fell.
When we last reported on AlphaCat Managers, the ILS fund strategies it operates had just experienced two consecutive quarters of inflows.
Assets under management at AlphaCat had fallen to $3.5 billion by the end of Q3 2021, but then rose to $3.6 billion by the end of last year and then again to $3.7 billion by the end of the first-quarter of 2022.
Parent AIG reported its results for the end of the second-quarter of 2022 yesterday and revealed a drop in AlphaCat’s overall insurance-linked assets under management to $3.4 billion, a $300 million decline in the quarter.
It appears that AIG has doubled-down on its own investment into AlphaCat’s ILS fund strategies in the last quarter of record, as the third-party capital AuM has declined faster than the overall ILS assets figure.
AIG reported that AlphaCat’s AuM from third-party assets had fallen to $3.2 billion at the end of the second-quarter of 2022, down $400 million from the $3.6 billion reported at the end of Q1.
Meaning AIG now has a $200 million stake in the AlphaCat managed ILS funds and collateralized reinsurance structures, perhaps reflecting the opportunity it believes the market currently offers as it hardens.
On the fee income side of the AlphaCat ILS fund management business, AIG benefited from a higher contribution from the ILS business in Q2 2022.
Total income from the AlphaCat strategies reached $8 million for the second-quarter of 2022, up from the $6 million earned in the prior year period.
Of that, fee income was $5 million, which was slightly down on the prior year period $6 million and possibly a reflection of lower assets under management at AlphaCat.
But positively, AIG’s share in the income from the AlphaCat direct investment activities themselves, came out at $3 million for Q2 2022, much better than the zero reported for the Q2 2021 quarter.
AlphaCat’s ILS assets under management are now back at the level they were at when AIG acquired the Validus Group and so the ILS fund manager as well. We assume some investor churn, alongside realisation of losses and unwinding of prior year loss-impacted positions will be the driver of the AuM decline in the last quarter.
In the period since AIG acquired it, the significant catastrophe losses suffered, from 2017 just prior to the acquisition and the years following, have challenged AlphaCat and made it difficult for AIG to maximise on its ownership of the ILS manager.
But, with a good deal of the loss activity from those years likely recognised by now, AIG stands well-positioned to build on the AlphaCat strategies again, and a demonstrated period of performance should help the manager to begin to rebuild AuM and show how an ILS strategy can deliver as a synergistic part of a global insurance and reinsurance group.
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