The rapidly improving property catastrophe reinsurance market is a solid opportunity for American International Group (AIG) to more aggressively leverage the capabilities of Validus Re, the firm’s underwriting arm, said AIG CEO Peter Zaffino in conversation with KBW.
Zaffino noted that the current property catastrophe reinsurance capacity shortfall, more closely resembles past truly hard market conditions, which KBW analysts believe, should drive much faster changes to rates, terms, and conditions, and – ultimately – expected returns.
KBW said: “Although the reinsurance industry has missed past years’ expectations for improving discipline following significant (and often surprising) catastrophe losses, we think that the absolute mismatch between rising inflation-driven demand and declining supply (stemming from losses, trapped capital, adverse foreign exchange, investment portfolio declines, and several players’ partial or total withdrawals from underwriting property catastrophe reinsurance) will produce sustained industry-wide discipline; itself reflected in the fact that to date, Validus Re – like, we believe, most reinsurers – has yet to actually issue any quotes for January 1 renewals.”
According to the analysts, AIG’s ultimate decisions on its 2023 inwards and outwards reinsurance will almost certainly impact line of business mix, which should affect the individual components of its combined ratio.
But overall, they believe that the current environment points to material margin improvement with well-managed volatility. Moreover, they are increasingly confident that AIG’s recent financial lines’ reserve strengthening implies better overall reserve development for next year and beyond.
