AIG improves aggregate cover, expects fee income from new sidecar syndicate: CEO Zaffino

At the January 2025 reinsurance renewals, AIG improved the terms of its aggregate catastrophe reinsurance protection, lowering the deductible in North America, CEO Peter Zaffino has said, while he also explained that the recent third-party capitalised syndicate launch is expected to drive fee income for the company.

Speaking just now on the AIG earnings call, Zaffino explained that AIG successfully achieved its objective with its reinsurance purchasing strategy at the 1/1 renewals, “to preserve and optimise capital and enhance the quality of earnings through active management of the volatility of our underwriting results.”

In the core commercial North America property catastrophe occurrence reinsurance tower, Zaffino said that AIG will move through 2025 with a “retention of $500 million remains unchanged in nominal terms for the third consecutive year despite growth in the underlying portfolio.”

“We also expanded coverage and maintained our core international occurrence attachments and renewed our dedicated occurrence tower for our high-net-worth business, which attaches at $200 million,” he further explained.

On aggregate catastrophe reinsurance, an area AIG has consistently benefited from protection over the years, Zaffino noted improvements to contract terms at the 1/1 2025 renewals.

Zaffino said, “We improved our $500 million of aggregate protection by reducing the annual aggregate deductible for North America, creating a specific non-peak section, and expanding the coverage for the high net worth portfolio.”

He added that, “Overall for North America, depending on loss distribution, AIG’s modelled net first loss exposure, including the impact of reinstatement premiums, is comparable to 2024 and our second and third event exposure is materially lower following this renewal cycle.”

Across all major proportional reinsurance arrangements, AIG was able to improve or maintain the levels of ceding commission Zaffino further explained.

The insurer also added two new proportional treaties to support its high-net worth portfolio at the renewals, AIG’s CEO said.

“Our strategy to establish private client select as a standalone MGU and introduce capacity to support growth in the platform, beyond AIG’s balance sheet. has been validated with the addition of five of the leading underwriting companies in the world to the platform, taking 30% of our homeowners and auto portfolios through quota share reinsurance,” Zaffino commented.

He went on to discuss the recent launch of AIG’s Syndicate 2478 at Lloyd’s, which is a multi-year participant on the insurer’s outwards reinsurance program and is supported by third-party capital from funds under Blackstone management, channelled through the London Bridge 2 PCC insurance-linked securities (ILS) structure, so is reinsurance sidecar-like in its nature.

“This pioneering structure announced in December 2024 is an example of how insurance risk can be directly connected to sophisticated investors to generate attractive returns for both parties,” Zaffino said.

“The syndicate provides AIG with a long-term, meaningful reinsurance partner and an additional source of fee income.”

The syndicate, in acting like a third-party capitalised reinsurance sidecar for AIG, will both moderate the hit to its balance-sheet from losses, and provide a way for AIG to earn additional fee income based on the performance of the portfolio ceded to it, while the CEO also went on to explain the benefits to the investors.

Zaffino went on to say on this third-party capital reinsurance partnership, “Blackstone has access to a high quality, well-diversified underwriting portfolio with the ability to generate attractive returns by taking a sizable participation in the majority of AIG outward reinsurance treaties at market terms.