Reinsurance News

AIG to increase Validus Re investment after “compelling” 1/1: CEO Zaffino

17th February 2023 - Author: Matt Sheehan

AIG Chairman and Chief Executive Officer (CEO) Peter Zaffino has said that his company plans to “increase investment” in its assumed reinsurance business in 2023, particularly through Validus Re, following a “compelling” January renewal period.

Speaking during an earnings call this week, Zaffino noted that AIG via its reinsurance units was “in a strong position” to capitalise on attractive opportunities at 1/1.

AIG achieved record underwriting profitability within its General Insurance division for 2022 at $2 billion, which, alongside net realized gains on Fortitude Re funds, contributed to a rise in net income to $10.2 billion for the year.

At the same time, the insurer saw its adjusted after-tax income fall from $4.4 billion to $3.6 billion, primarily as a result of lower alternative investment income and call and tender income, partially offset by the improved underwriting result.

The company also made efforts to reposition and improve the quality of its portfolio over the year, while working to reduce its gross portfolio peak exposures.

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And de-risking within its Validus Re business was particularly acute in the global property cat market, where year-over-year AIG worked to reduce participations across the portfolio, while concurrently purchasing retrocession protections to manage the portfolio and reduce volatility in-line with its cycle management strategy.

This enabled it to enter January negotiations on the front-foot, Zaffino noted, adding: “The property market in particular repositioned and became very compelling in terms of risk adjusted rates, along with enhanced structures, as well as beneficial terms and conditions.”

Rate changes within property catastrophe business for 1/1 ranged between 30% and 100% in the US, as well as in peak zones outside the US, and AIG saw risk adjusted rate increases of approximately 50% in the US property, and 35% in international property.

Similarly, average margin improvement was approximately 50% year-over-year across the company’s entire portfolio, and property cat ROE’s for both the US and international business increased by greater than 100% year-over-year.

Zaffino further disclosed that AIG we obtained improved terms and conditions including favourable movement in attachment points in all property lines for its reinsurance businesses, with quota shares also remaining sound for casualty lines, with ceding commissions moving favourably for reinsurers by one to two points, along with terms and conditions remaining in-line or improved.

“The result of these actions included, net premiums written at January 1 increased over $500 million or 50%, year-over-year,” Zaffino explained. “This increase was driven roughly 30% from US property, 15% from international property, 45% from casualty placements and the remaining 10% was from speciality, including marine and energy.”

“The majority of new property limit was deployed to existing clients with a significant level of private terms being achieved on our US property writings,” he added.

“Looking ahead, we will continue our measured approach for other renewals. For example, if meaningful market changes continue, we will carefully consider our positions at the April 1st Japan renewals and we will continue to be very cautious with capital deployed at June 1 in Florida.”

In terms of the reinsurance protection bought by AIG at January, Zaffino revealed that his company increased its overall spend by “less than 10%” on an absolute and risk adjusted basis versus 2022, while also managing to obtain more limit on its property catastrophe placements, and maintaining coverage levels elsewhere.

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