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AIG close to attaching NA aggregate treaty cover: CEO Zaffino


AIG is close to attaching its aggregate reinsurance covers for North America and the rest of the world excluding Japan, CEO Peter Zaffino has said.

The carrier is now expecting “limited” catastrophe losses during Q4 as its worldwide retention has approximately $175mn remaining before the aggregate treaty attaches, which would essentially be for Japan catastrophes coverage.

“We have put significant management focus into our reinsurance program,” Zaffino told investment analysts during the third-quarter earnings call this morning.

The executive added that the company has “each and every” loss event deductibles of $75mn for wind, $50mn for earthquakes and $25mn for other perils in North America, as well as $20mn in deductibles for its international operations.

The insurer also noted that after a $326mn subrogation recovery from the 2017-2018 wildfires, it has reversed a previous 2018 reinsurance recovery of $206mn - since the subrogation gain meant that losses were no longer high enough to attach its reinsurance cover. Without the subrogation gain, AIG's general insurance prior year development would have been a $70mn unfavorable development, including marginal reserve boosting to cat reserves for 2019 and 2020 events.

Zaffino showed confidence in AIG’s reinsurance business but said the industry in general needs to acknowledge the impact of climate change as catastrophe losses amount to $114bn over the last five years, up 30% from the 10-year average and up 40% from the 15-year average.

“We've never seen consistent cat losses at this level as an industry, need to acknowledge that frequency and severity has changed dramatically as a result of climate change and other factors,” he explained.

The executive revealed that AIG has been investing in its cat research team to address this issue, while making frequency and severity adjustments for wildfire, wind, storm surge, flood and other perils to its models.

“We will continue to leverage new scientific studies, improvements in vendor model work and our own claims data to calibrate our views on risk over time,” Zaffino noted.

Commenting specifically on the Validus Re operations, AIG CEO said the business hasn’t increased its risk appetite and has taken a conservative position in terms of its net retentions.

“So, we've reduced our aggregates in peak zones, such as Florida, significantly from the original portfolio that we acquired,” Zaffino explained.

“That continuation of strategy of getting balanced diversification and making sure that we're not taking significant nets in the portfolio and making sure that we're driving risk-adjusted returns as we look to 1.1 is going to be very important,” he concluded.

AIG has been immersed in an underwriting revamp in recent months as part of its strategy to limit losses. In the second quarter, the carrier’s management called higher attachment points a ‘pre-emptive action’ on rising inflation, and noted other risks factors such as costs of materials and social inflation.

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