AIG Chairman and Chief Executive Officer (CEO) Peter Zaffino has disclosed details of his company’s experience at the recent January reinsurance renewal period, which he says proved “exceptionally successful” given challenging market conditions.
Specifically, he says AIG 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.
Zaffino’s comments came as part of an AIG earnings call today, during which executives discussed the company’s performance over the previous year, as well as the reinsurance coverage it has secured for 2023.
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.
This meant the company was in a “strong position” heading into the January renewals, Zaffino explained on the earnings call, and enabled it to “capitalise on many attractive opportunities” and gain a “competitive advantage” in negotiations.
“AIG navigated this complex and intense renewal season extremely well,” he said, noting that reinsurance partners generally maintained “consistent capacity deployment and reinsurance terms” at 1/1 despite a wider lack of available capacity.
Among the highlights of its placement for 2023, AIG obtained more limit on its property catastrophe cover, with Zaffino claiming that the company now boasts the lowest attachment points on a return-period measurement for North America windstorm and earthquake amongst its peer group.
Specifically, AIG made changes to its North America property cat treaties with a retention for its commercial cat portfolio attaching at $500 million and Lexington and its programmes business having an attachment point of $300 million.
The property cat aggregate cover it placed has four retentions before attaching and for North America, Japan and rest of world, it can now attach on the second event, which Zaffino notes is an improvement from 2022.
Property cat per-occurrence structures largely stayed the same for international, with Japan’s retention staying flat at $200 million and the rest of the world attaching at $125 million.
The company also obtained approximately $6 billion of limit including increasing its per-occurrence excess of loss placement, maintained low attachment points on a modelled basis, and received support for a $500 million aggregate placement.
And, as noted previously, these improvements to the program for 2023 were obtained at an additional cost of less than 10% when compared with its coverage for the previous year.
“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 commented.
Other notable outcomes from the renewal saw AIG reduce the total limit purchased for its Private Client Group (PCG) specific cat program, which partially offset increased pricing pressure due to Hurricane Ian.
AIG has accelerate portfolio remediation for PCG, which it says is driving further gross exposure reductions in key catastrophe-exposed states where loss costs, inflation and necessary modelling changes have not kept pace.
And in terms of casualty renewals, both excess loss and quota share placements renewed close to expiring terms on a risk adjusted basis with no impact on ceding commissions, Zaffino said.
“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,” he added.
AIG management attributed part of the company’s success at 1/1 to the heavy weighting that it places on the January period by design.
“The benefits of this are twofold,” Zaffino explained. “Concentrating the bulk of our purchasing at January 1 allows AIG to maximise the outcome across all of our reinsurance placements and we have 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.”
