Global insurer AIG was able to “significantly improve” its property catastrophe structure and reinsurance coverage provided at the key January 1st, 2024, reinsurance renewals, with Chief Executive Officer (CEO) Peter Zaffino describing the outcome as “tremendous” for the carrier.
After reporting a solid set of results for the fourth quarter and full year 2023, AIG’s CEO discussed the firm’s experience at the 1.1 2024 renewals on a recent earnings call.
He explained that AIG deliberately buys the majority of its reinsurance protection at January 1, as it enables the firm to “strategically optimise” the outcome across its placements, providing the firm “with clarity on our cost of reinsurance at the beginning of the year.”
Before delving into the specifics, Zaffino noted the dramatic changes in the global property market over the past two years, which makes analysing AIG’s risk profile ever more complex. He then went on to explain AIG’s methodology in determining the risk adjusted change at its renewal, underlining the need to compare like for like.
When applying this methodology, Zaffino said that “AIG had a tremendous outcome with our reinsurance partners at the January 1 renewal season, building upon the very strong result achieved in a very challenging market in 2023.”
The headline, he continued, “is that we were able to significantly improve our property cat structure and reinsurance coverage provided.”
When compared with the previous year’s purchase, including for Validus Re, Zaffino explained that the overall spend for 2024 has come down roughly $200 million, while AIG’s core property treaties, excluding Validus Re, have slightly lower ceded premium year-over-year.
Starting with the company’s property cat placements, the CEO revealed that the core commercial North America retention of $500 million remained unchanged for the second straight year, while the attachment on the dedicated Lexington occurrence tower was also unchanged at $300 million.
“In both cases, the modelled attachment point is lower, and the exhaust limit is higher,” said Zaffino.
The international property cat per-occurrence structures renewed with a reduced retention in Japan to $250 million, which is a $50 million improvement year-over-year, while the rest of the world attachment was unchanged at $125 million.
“We were very pleased to have achieved broader coverage across all of our core occurrence towers. With nominal attachment points unchanged, or in the case of Japan decreasing, the modelled probability of attaching our cat reinsurance improved with respect to key perils and across every major territory, following the growth achieved in the property portfolio in 2023,” said Zaffino.
AIG also renewed its property cat aggregate cover at 1.1 2024, with Zaffino noting improved coverage as the firm further reduced volatility from frequency of loss.
“The aggregate now includes a standalone supplement dedicated to losses in North America arising from secondary perils. Importantly, it also now covers contributing losses from our high net worth portfolio. Our annual average deductible for North America is $825 million. The North America other perils deductible is $350 million, which is a new deductible. And Japan and the rest of the world deductibles are $200 million and $175 million, respectively. These are subject to each and every last deductibles of $20 million other than for North America wind an earthquake which are at $50 million. Our return period attaching point is lower year over year,” said the CEO.
“For all of our major proportional treaties across a range of classes, we improved or maintain our ceding commission levels, reflecting our market leading underwriting expertise and position in the market,” he added.
In terms of the firm’s casualty reinsurance renewal, Zaffino commented on some of the challenges in the market as a result of inflation, both social and economic, and also litigation funding in the US, which were both focal points for reinsurers at the renewals.
“For casualty at AIG, we remain very focused on our underwriting standards, and the positioning of the portfolio,” said Zaffino. “Our team has done a terrific job of re-underwriting the entire business, particularly considering the amount of work that was needed to reposition it to where it is today.”
“As we outlined last quarter, we put a comprehensive reinsurance treaty in place starting 2018, that provides us with substantial amount of vertical protection. Our renewal of the casualty reinsurance protections allowed us to maintain the same net retained lines with no impact on ceding commissions, which is an outstanding outcome,” added Zaffino.
Summarizing AIG’s experience at the January 2024 renewals, Zaffino said: “At January 1, our reinsurance partners maintained their significant support of AIG, with consistent capacity and improved reinsurance terms that demonstrate a clear recognition of the quality of our portfolio and our underwriting teams.”