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AIG continued to refine & enhance reinsurance use at 1/1

14th February 2020 - Author: Luke Gallin

Global insurer and reinsurer AIG continued to refine and enhance its reinsurance buying strategy at the recent Jan 1st, 2020 renewals, securing an improved catastrophe reinsurance program at a lower cost when compared with the previous year.

peter-zaffino-aigIn recent times, AIG has made some significant changes to its use of reinsurance protection and comments from Peter Zaffino, Chief Executive Officer (CEO) of General Insurance and Global Chief Operating Officer (COO) during its recent earnings call revealed further enhancements at 1/1.

“We continue to enhance both the aggregate and occurrence structures for our global property cat program, which provides significant protection against both severity and frequency of events in addition to providing extreme tail protection,” said Zaffino.

Specifically, and within its 2020 aggregate protection, AIG has combined the international and North America deductibles into a single global deductible, and has reduced each and every event deductible to be more tailored by geography.

According to Zaffino, these enhancements “increase the relevance of the aggregate protection particularly with respect to secondary and lesser modelled perils.”

AIG also purchased two core per occurrence towers at the important Jan 1st renewals, one of which provides protection for North America commercial property, while the other offers protection for all international property, including Japan.

“As with our expiring 2019 global cat program, the global aggregate protection also provides us with significant additional limit with losses arising from a single large occurrence,” explained Zaffino.

In October of last year, AIG announced the launch of a new Lloyd’s of London syndicate designed to serve the specialist US high net worth market, called Syndicate 2019.

In light of this, AIG secured additional reinsurance protection at 1/1 in the form of a separate occurrence tower for its U.S. private client group, providing a dedicated tower for North America commercial as part of its Lloyd’s initiative.

“This was the only substantial new program we entered into on January 1,” said Zaffino.  “With respect to property per risk through a combination of the significant reduction in gross limits deployed, and enhanced reinsurance purchasing over the last two years, we dramatically reduced our net retention to any one property loans,” he continued.

Overall, the improvements made to its reinsurance cover saw the firm renew for 2020 at a lower maximum attachment point of $25 million, down from the previous $50 million. And, at the same time, AIG managed to reduce its purchase for higher layers as its strategy to lower gross limits continues to improve the re/insurer’s risk profile.

“In the aggregate, we were able to improve our overall cat reinsurance program including terms and conditions while reducing the overall cost by approximately 7% year-over-year.

“We will continue to refine and enhance our reinsurance program as the year progresses and expect to finalise Syndicate 2019 in the first half of the year,” said Zaffino.

He noted that overall, the reinsurer is pleased with the outcome of the January 1st renewals, and underlined that the relationships the firm has established over the past two-three years enabled it to achieve favourable renewals of its major treaties, in line with expectations.

The re/insurer announced its Q4 and full year 2019 results recently, which revealed a return to underwriting profit within its General Insurance unit, lower cat losses, a high investment return and some favourable prior year reserve development.

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