Zaffino named CEO, as AIG announces $790m of Q3 catastrophe losses

Insurance giant American International Group, Inc. (AIG) will have a new CEO, as Peter Zaffino takes over as expected, while Brian Duperreault moves to become Executive Chairman of the company.

In a day of announcements, AIG has also pre-announced $790 million of catastrophe losses from the third-quarter of 2020, $185 million of which are related to claims from the COVID-19 pandemic.

Also announced is a plan to to separate out the Life & Retirement business from AIG, as the company looks to hone its operational structure and efficiency, a move that’s likely peak the interest of certain private equity investors in case AIG wants to take on a partner in this separation.

First, the expected move to make Peter Zaffino CEO.

Zaffino will keep his current role as President of the company and become Chief Executive Officer of AIG from March 1st 2021. He will also become a Director of the insurer.

Duperreault becomes Executive Chairman, while Douglas M. Steenland, currently Independent Chairman of the Board, will become Lead Independent Director, also effective March 1st 2021.

Zaffino commented, “I am honored to succeed Brian as Chief Executive Officer of AIG and want to thank him and the AIG Board of Directors for this opportunity. I look forward to leading AIG’s next phase on our journey to becoming a top performing company.”

Duperreault added, “I want to thank the AIG Directors for their continued support and congratulate Peter on his well-deserved election as the next Chief Executive Officer of AIG. Peter has been instrumental in the significant turnaround and transformation at AIG and his vision, determination and pursuit of excellence will help ensure the company’s future success.”

Steenland, speaking on behalf of the Board of Directors, also said, “We are grateful to Brian for his leadership and expertise in guiding the strategic repositioning of AIG’s businesses as market leaders and we look forward to his ongoing contributions as Executive Chairman. We are extremely fortunate to have an executive of Peter’s caliber and have great confidence about the future of the company under his leadership.”

Onto the catastrophe loss impact, which had been expected to be a significant number for the insurer.

AIG has reported that its General Insurance segment estimates $790 million of Q3 catastrophe losses after accounting for reinsurance recoveries, before tax.

Third-quarter natural catastrophe losses amounted to $605 million of that total and are largely related to windstorms and tropical storms affecting the United States and Japan, as well as wildfires on the west coast U.S.

COVID-19 losses amounted to $185 million, again before tax and net of reinsurance, principally affecting AIG’s travel, event cancellation, trade credit, property, agriculture and casualty books of business.

Duperreault, still AIG’s CEO until March 2021, commented on the losses, “The third quarter experienced a high frequency of global catastrophe events with low to moderate severity, including the ongoing impact of COVID-19. These events have had a limited impact on AIG as a result of our underwriting discipline, reinsurance programs, revamped risk appetite and the strength of our balance sheet.”

Reinsurance recoveries have tempered these Q3 losses for AIG and the way the carrier has strengthened and expanded its coverage in the last few years is likely meaning the program responds more readily to frequency event impacts, such as this year’s hurricane season.

Finally, AIG intends to separate out its Life & Retirement business.

The carrier said that it undertook a comprehensive review of its composite structure, including strategic, operational, capital and tax implications, concluding from the results that it should pursue a separation of the Life & Retirement business from AIG.

The company said that a simplified structure will “unlock significant value for shareholders and other stakeholders.”

It’s certainly pleased shareholders, with AIG’s stock rising some 7% yesterday.

AIG said no decision has been made as to how to effect the separation, but its goal is to maximise value and establish two independent, market leading companies.

Duperreault said, “Over the last three years, we have taken significant action to de-risk AIG and position the company for profitable growth, including fortifying General Insurance, diversifying Life & Retirement, significantly strengthening AIG’s capital and liquidity position, and building a world-class team. This foundational work has positioned AIG to pursue a separation of Life & Retirement enabling both companies to prosper as stand-alone entities.”

Zaffino added, “Across AIG, we have made significant progress executing on our strategy to deliver value for our clients, distribution partners, shareholders and other stakeholders. Our businesses can be further strengthened by separating Life & Retirement from AIG, which we believe will enable each entity to achieve a more appropriate and sustainable valuation.”

Steenland, speaking on behalf of the AIG Board of Directors, also said, “The Board worked closely with executive management as they conducted a comprehensive review of AIG’s composite structure, and AIG’s Directors are confident that a separation of Life & Retirement from AIG will create value for shareholders and benefit all stakeholders.”

AIG’s Life & Retirement business could prove extremely attractive to potential private equity investment giants, who have shown their appetite for similar businesses over the last couple of years. It would also be an opportunity to launch a third-party capitalised co-investment sidecar like vehicle to boost life and retirement deal-making capacity.

A sale may also have been an option, but if AIG is determined to keep the business independent it seems likely a partnership with investors may prove a better way to capitalise the Life & Retirement business more significantly, while putting it on a stronger platform to go forwards with alone.

The P&C entity is already one of the world’s largest and may benefit from standing alone, although benefits related to composite diversification will of course disappear as the life side gets separated.