ILS is not commoditised reinsurance, AIG targets more of it: Peter Zaffino

Insurance-linked securities (ILS) market players are seen as equal partners to reinsurers for AIG, not commoditised reinsurance capacity, when it comes to the giant insurers’ purchasing of reinsurance, according to CEO Peter Zaffino, while the insurer also wants to grow its assets under management in the ILS space.

Speaking with analyst Meyer Shields at a Keefe, Bruyette & Woods (KBW) conference this week, Zaffino, who has also been made Chairman of the AIG Board in recent days, explained that the major ILS fund managers are significant partners and that they show great continuity in their participation in the insurers’ reinsurance arrangements.

Zaffino explained at the event how important ILS is as a source of reinsurance capacity for AIG, but also as a pool of capital the company can manage internally as well, in its AlphaCat Managers specialist ILS unit.

Asked by Shields about how he views reinsurance relationships and how important they are, Zaffino responded, “I take those reinsurance relationships very seriously, as does AIG.

“Maybe it’s my background, maybe it’s my philosophy, but, you know, those partnerships are incredibly important.

“Having core reinsurance partners that trade across your portfolio for all their lines-of-business and finding ways to expand those relationships is a key part of what we’ve been able to do, in improving the reinsurance programs for AIG.

“ILS, I still feel that way as well.”

He went on to explain that ILS investors are important both as partners, clients and risk capital providers, to AIG, playing a meaningful role in its property catastrophe reinsurance program in particular.

“I mean, they’re competitors of AlphaCat,” he said, “But we have always used ILS as a very meaningful placement strategy for our property cat. That will continue.”

Importantly, ILS capacity has also proven a reliable partner for AIG it seems.

As Zaffino explained, “The continuity through the major ILS players on our property cat program is significant, and there’s a lot of continuity year-to-year.

“So, we very much focus with them on areas where, you know they all have different risk return parameters and where they want to attach and limit deployment, but that’s a key part of our strategy, and that will continue.”

Zaffino explained how AIG has been lowering some of its reinsurance attachment points and adjusting its catastrophe program in recent years.

Interestingly, one area that attachments have been bought down in the last few months is the Gulf Coast, which suggests AIG’s cat reinsurance program could respond more readily to recent hurricane Ida.

Although Zaffino did say that he believes the European flooding could be more of a reinsurance event than Ida, overall.

Back to ILS and Zaffino explained that he and AIG do not differentiate between reinsurance capital sources.

“I do not look at them as commoditised reinsurance capacity” he said. “They’re equal partners as to reinsurers that can deploy capital on their own balance sheet. They’ve been very important to us.”

He also explained AIG’s ambitions in the ILS space, with its specialist ILS fund management operations under the AlphaCat brand.

Here, Zaffino sees a clear opportunity for growth, when asked about how adjacencies in the AIG business could result in chances to build out the business further.

“I’d like to see us, if we’re talking at this conference in 3 years, to have had more AuM in the ILS space.

“I think that there’s opportunities, that we see through Validus Re, that will allow us to scale ILS much faster ,and believe that that opportunity will exist for us in the future, and very much want to position Chris Schaper and the leadership team for growth in the ILS,” he explained.