Insurer and reinsurer AIG anticipates making a recovery under its international per-occurrence catastrophe reinsurance treaty as a result of COVID-19-related losses, according to Peter Zaffino, President and Global Chief Operating Officer (COO) of AIG, and Chief Executive Officer (CEO) of the General Insurance (GI) unit.
Speaking during the company’s second-quarter 2020 earnings call, Zaffino underlined that AIG’s reinsurance programme provides the firm with “meaningful protection against our overall gross losses related to COVID-19 across our most impacted lines.”
Yesterday, AIG reported that its GI division fell to a Q2 underwriting loss of $343 million on the back of catastrophe losses, net of reinsurance, of $674 million.
The majority, or $458 million of this relates to the ongoing pandemic, which, combined with the company’s COVID-19 impact in Q1, takes total losses related to the pandemic to $730 million as at the end of June 2020.
Discussing the firm’s pandemic losses in the second-quarter, Zaffino said that the estimation process for commercial property, as with all lines impacted by the event, was fact-based, “both in terms of actual claims experience in the quarter and the specific terms & conditions under those policies where we provided affirmative coverage for infectious disease-related losses.”
Of course, the pandemic is very much ongoing and as highlighted by Zaffino during the call, is accelerating in numerous regions around the world.
“While we have an additional quarter of experience from which to assess our exposures, our second-quarter aggregate estimate reflects our best view at June 30th,” he explained.
Turning to property losses from the event, Zaffino noted that as well as AIG’s international property per-risk treaty, the re/insurer’s property cat reinsurance features separate occurrence towers for North America and International, while the company also boasts substantial global aggregate cover.
In recent years, AIG has enhanced and refined its use of reinsurance protection, having made strategic adjustments to its reinsurance coverage in an effort to better realise the benefits.
“Based on our current expectations of COVID-related losses through the second-quarter, we expect to recover under our international per-occurrence catastrophe treaty and we have approximately one-half of our retention remaining before attaching under the North America per-occurrence catastrophe treaty. Both per-occurrence towers have a reinstatement limit,” said Zaffino during the earnings call, held August 4th, 2020.
As a result of pandemic-related losses and an expectation of continued heightened demand for reinsurance, it’s possible that reinsurance capacity could contract in the near-term. In light of this, AIG acquired an additional $500 million of aggregate limit in Q2, explained Zaffino.
Adding: “We continue to have a substantial protection against exposure to natural catastrophes throughout the remainder of the year and in particular going into peak wind season.”
With COVID-19 claims continuing to mount and fears over a second wave growing in parts of Europe and elsewhere, demand for reinsurance is expected to rise over the coming weeks and months. Furthermore, it’s already proving to be an active Atlantic hurricane season and we’re only in early August, so there’s clearly potential for the dynamics to shift again.