Speaking at an insurance conference run by Bank of America Merrill Lynch this morning, Peter Hancock, the CEO of insurance giant AIG, said that he hopes the company will be able to renew its casualty quota share reinsurance arrangement with Swiss Re on better terms in 2018.
AIG entered into a two-year casualty quota share reinsurance arrangement with Swiss Re in March 2016, covered at the time by our sister publication Artemis,. The deal was pitched as a way for AIG to make better use of reinsurance capital, as one of the ways it would look to improve its performance.
As a result of the deal Swiss Re took a significant share in AIG’s casualty book, by reinsuring it on a quota share basis.
Now, around a year later, Hancock clearly believes that the steps taken by AIG to improve its casualty business will help in its renewal negotiations for the two-year reinsurance deal.
AIG has transferred a significant amount of its legacy casualty business risks with the recent retroactive adverse development cover entered into with Berkshire Hathaway, will have improved its risk profile sufficiently that a renewal of the Swiss Re quota share could be more attractive.
But as well as this deal AIG has implemented changes to its underwriting appetite and process on casualty business in 2016, which Hancock feels could be a benefit to its risk profile going forwards.
Given the de-risking efforts its reasonable to assume that AIG may receive more favourable terms on a renewal of the quota share.
But Swiss Re will be the judge of terms and pricing, with the in-force quota share providing it with visibility of the underwriting performance of this book anyway, the reinsurer should be well-positioned to make a determination on the future terms of a renewal contract when that time arises.
Hancock also said at the event that AIG would continue to shrink its liability exposures anyway, particularly commercial lines. So chances are that by renewal time the risk in the casualty portfolio will have significantly decreased.