AIG has been evolving its use of reinsurance for some time, restructuring its programme at renewals to reflect its significantly improved underwriting portfolio.
In line with the 2021 renewal, at Jan 1st, 2022, AIG further reduced the volatility in its portfolio by making meaningful improvements to its core placements in every major treaty.
“During the January 1 renewals with respect to our ceded reinsurance, we were very pleased with the outcome of our reinsurance placements,” said Zaffino during the company’s Q4 2021 earnings call.
“While the markets presented significant challenges across the industry, with retrocessional limited along with other capacity issues, our reinsurance partners recognize the strength of our improved underwriting portfolio and reduced aggregation exposure, which translated to many improvements in our reinsurance structures, along with better terms and conditions,” he continued.
Zaffino reminded listeners that AIG placed more than 35 treaties at 1/1 with over 65 discrete layers, and over $12 billion of limit placed, as the insurer ceded $3 billion+ of premium to the market.
After a number of years where the insurer’s underwriting performance was dented by natural catastrophe losses, reducing the volatility of its book has been a top priority.
As highlighted by Zaffino, AIG has “very strong relationships with our reinsurance partners and the support we receive in the marketplace is evident in the quality of the overall reinsurance program.”
Continuing to explain that, “We continue to make meaningful improvements to our core placements in every major treaty on January 1st. And, as a result, continue to reduce volatility in our portfolio.”
During the call, Zaffino provided some key highlights of the 2022 reinsurance program, which includes improvements to both the per-occurrence and aggregate structures for its global commercial business within its property catastrophe treaty.
“For the North America per-occurrence property cat treaty, we lowered our attachment points $250 million for all perils, which is a reduction from our core 2021 program that had staggered attachment points depending on peril, that ranged from $200 million to $500 million, and we maintained our per-occurrence attachment points International, which are $200 million for Japan and $100 million for the rest of the world,” said Zaffino.
“For our global shared limit aggregate recover, we were able to reduce our attachment point in every region across the world, most notably $100 million reduction in the attachment point in North America. For our global shared limit, each and every deductible remain the same, or reduced in every global region, most notably a $25 million reduction in North American named storms.
“Our attachment point return periods are the same or lower in every region across the world, when compared to our 2021 core reinsurance program and our exhaustion period returns are higher in every instance across the world, on an OEP and AEP basis,” he continued.
In light of the recent heavy catastrophe years and the hardening reinsurance market environment, it’s impressive that AIG has managed to secure better terms on its aggregate reinsurance at 1/1.
Furthermore, the company has managed to further reduce the volatility of its book to better suit its underwriting strategy and has done this at a lower cost than in the previous year.
“We achieved these significant improvements while modestly reducing the total aggregate reinsurance cat spend,” explained Zaffino.
At the same time, AIG reduced its net limits on its excess of loss treaty in both North America and International within its core casualty reinsurance treaty at Jan 1st.
However, “our proportional core North American placement we maintained the same cession amount while improving our ceding commission by 400 basis points, which represents an 800 basis point improvement over the last 24 months, reflecting our significantly improved underwriting and recognition from the reinsurance market.”
