Insurance giant American International Group (AIG) is likely to severely drain its reinsurance protection for Japanese loss events after it accounts for its losses from typhoons Faxai and Hagibis, according to analysts,
Equity analysts from Credit Suisse claim that AIG could have used up its per-occurrence reinsurance protection going into losses from typhoon Hagibis.
This $500 million layer of per-occurrence catastrophe reinsurance protection attaches excess of $200 million of losses for AIG, which means that losses from typhoon Faxai probably triggered this layer of protection.
The analysts estimate that AIG may have faced a gross loss of around $750 million from typhoon Faxai, based on it having a roughly 10% market share in the affected area.
That alone could have eroded the per-occurrence reinsurance cover that the insurer benefited from in 2019.
At that level, AIG’s net of reinsurance exposure from Faxai would have been capped at the $200 million retention sitting beneath the per-occurrence layer, plus the remaining $50 million above where that layer exhausts.
Which raises the question and the analysts rightly ask whether AIG has reinstatements on this layer of its reinsurance program for Japanese catastrophe losses, or not?
The analysts quote AIG COO Peter Zaffino, who had previously said that “it’s not healthy” to have to buy more reinsurance after a catastrophe event.
This would imply that having reinstatements is key, but the analysts also note that AIG has a global reinsurance program as well as its international program, which could serve a similar purpose in providing second-event protection more cost-effectively.
For typhoon Hagibis, the analysts estimate that based on AIG’s estimated market share in the area of Japan affected, the insurer could face as much as $600 million of gross losses from the recent storm.
If AIG has got a reinstatement option on the per-occurrence reinsurance protection, it will definitely have been triggered again.
If it hasn’t though, could there be an aggregate reinsurance protection within AIG’s overall reinsurance program structure that responds to the second typhoon in quick succession, however we can’t confirm that.
The analysts note that Faxai alone is unlikely to have hit AIG’s aggregate reinsurance, as prior to that the insurer hadn’t suffered any major event losses internationally.
The Credit Suisse analysts also noted that AIG recovered $264 million from its reinsurance program against $776 million of catastrophe losses from last year’s typhoons Jebi and Trami.
Suggesting that the ongoing resturcturing of AIG’s reinsurance program over the last few renewals may prove effective and more of the 2019 typhoon losses from Faxai and Hagibis could be ceded to its reinsurance providers.
As ever, when large global players like AIG call on reinsurance support it is likely to include some from insurance-linked securities (ILS) funds and collateralised players, including an element of support from its own third-party capital manager AlphaCat Managers.