AIG placed $500m aggregate, obtained $6bn of property cat limit at 1/1: Zaffino

American International Group (AIG) had a successful reinsurance renewals at January 2023, according to CEO Peter Zaffino, who said that the company improved on some of its terms, secured $500 million of aggregate cover and overall obtained $6 billion of property catastrophe reinsurance limit.

Speaking during the AIG fourth-quarter earnings call in the last hour, Zaffino explained that AIG’s renewals went perhaps better than had been anticipated.

He had been expecting things to be challenging, saying, “We knew this renewal season will be very challenging and lead to fundamental changes in the market that would impact 1/1 renewals.”

“Hurricane Ian in particular,” he said, “Proved to be a catalyst that changed market dynamics even more significantly than expected, and ultimately led to shifts in the market that required the industry to rethink reinsurance placements, and the commensurate changes that needed to take place in the primary market.”

A range of market dynamics “impacted the supply of reinsurance and retrocession capacity and the cost-of-capital increased for the industry,” Zaffino pointed out, saying that these effects were felt broadly across most lines of business and territories regardless of loss experience.

“On top of all of this, very little new capital entered the market,” he said, explaining that by AIG’s measure available reinsurance capital is estimated to have declined 20% over the last year.

Those reinsurers that were heavily reliant on retrocession suffered the most and the majority of primary insurers were forced to increase their retentions at the 1/1 renewals given the challenging environment, Zaffino explained.

But, “Despite these market challenges, AIG navigated this complex and intense renewal season extremely well,” Zaffino said.

“We knew we were in a strong position heading into January 1, given the repositioning and the improved quality of our global portfolio, coupled with our considerable efforts to reduce our gross portfolio peak exposures,” he continued.

Adding that, “As we expected, this allowed us to capitalise on many attractive opportunities and this proved to be a competitive advantage, as we had an exceptionally successful renewal season.”

Zaffino highlighted that with AIG buying the majority of its reinsurance at the January renewal, it feels it can “maximise the outcome across all of our reinsurance placements,” and benefit from a “clear line of sight on our reinsurance costs for the full year.”

“Which is particularly valuable in a market, which we believe will continue to be incredibly challenging,” Zaffino said.

Zaffino then went through some of the highlights in AIG’s reinsurance purchasing at the key 1/1 2023 renewals.

“With respect to property catastrophe placements, we obtained more limit than we purchased in 2022 and we believe we have the lowest attachment points on a return-period measurement for North America windstorm and earthquake amongst our peer group and our modelled exhaust limits are at higher return periods compared to last year for each of our placements,” Zaffino laid out.

Adding, “These placements should further reduce volatility which is something we remain very focused on and they provide us with significant balance-sheet protection in the event one or a series of significant catastrophe events occur.”

Zaffino said that AIG has made changes to the North America property catastrophe reinsurance treaties it buys, to reflect the improvements in its portfolio.

Now, for 2023, the retention of AIG’s commercial cat portfolio sits at a $500 million attachment, while for the Lexington and programmes business the attachment point sits at $300 million after this renewal.

AIG’s catastrophe aggregate reinsurance coverage has actually improved at this renewal, with the cover able to respond after second events in some regions where previously it hadn’t before.

Zaffino said, “The property cat aggregate cover that we placed has four retentions before attaching and for North America, Japan and rest of world, it now could attach on the second event which is an improvement from 2022.

“Our property cat per-occurrence structures largely stayed the same for international and we believe they are market leading, with Japan’s retention staying flat at $200 million and the rest of the world attaching at $125 million.”

That rest of world attachment is slightly up from the 2022 renewals’ $100 million.

He continued to explain that, “Many factors improved our overall property cat reinsurance programme, with highlights being, we were able to obtain approximately $6 billion of limit including increasing our per-occurrence excess of loss placement, we maintained low attachment points on a modelled basis, we received support for a $500 million aggregate placement and our overall spend for AIG increased less than 10% on an absolute and risk adjusted basis versus 2022.”

In addition, AIG has reduced its reinsurance limit purchased for the private client group business, which of course is now destined to shift over to the new third-party capital supported MGA venture that the insurer announced last week.

After “accelerated” portfolio remediation to reduce gross exposure in cat exposed states, Zaffino said that, “This allowed us to reduce the total limit purchased for the PCG specific cat programme, which partially offset increased pricing pressure due to Hurricane Ian.”

Overall, Zaffino appeared delighted with the reinsurance renewals, from AIG’s protection buying point of view.

“Our reinsurance partners maintained their support for AIG with consistent capacity deployment and reinsurance terms, in clear recognition of the quality of our portfolio,” Zaffino said.

Adding that, “The outcomes we achieved at January 1 also reflect the value of the investments we have made in our reinsurance strategy and, coupled with our relationships and credibility with reinsurance partners, are a testament to the confidence the reinsurance marketplace has in AIG and its management team.

“We appreciate the ongoing support we have received from our reinsurance partners.

“As we look ahead to 2023 the world faces many uncertainties and in uncertain times our role as a market leading global insurance company is even more important.

“With the momentum we have built and the strength of our portfolio, AIG is now extremely well positioned to strategically grow and lead the market by providing thoughtful, expert advice on risk solutions for our clients, distribution partners and other stakeholders.”