He had actually been anticipating things to be tough, stating, “We knew this renewal season will be very challenging and lead to fundamental changes in the market that would impact 1/1 renewals.”
“Hurricane Ian in particular,” he said, “Proved to be a catalyst that changed market dynamics even more significantly than expected, and ultimately led to shifts in the market that required the industry to rethink reinsurance placements, and the commensurate changes that needed to take place in the primary market.”
A series of market characteristics “impacted the supply of reinsurance and retrocession capacity and the cost-of-capital increased for the industry,” Zaffino mentioned, stating that these impacts were felt broadly throughout a lot of lines of business and areas despite loss experience.
“On top of all of this, very little new capital entered the market,” he said, explaining that by AIG’s step available reinsurance capital is approximated to have actually decreased 20% over the in 2015.
Those reinsurers that were greatly dependent on retrocession suffered one of the most and most of main insurance providers were required to increase their retentions at the 1/1 renewals provided the tough environment, Zaffino explained.
But, “Despite these market challenges, AIG navigated this complex and intense renewal season extremely well,” Zaffino said.
“We knew we were in a strong position heading into January 1, given the repositioning and the improved quality of our global portfolio, coupled with our considerable efforts to reduce our gross portfolio peak exposures,” he continued.
Adding that, “As we expected, this allowed us to capitalise on many attractive opportunities and this proved to be a competitive advantage, as we had an exceptionally successful renewal season.”
Zaffino highlighted that with AIG purchasing most of its reinsurance at the January renewal, it feels it can “maximise the outcome across all of our reinsurance placements,” and take advantage of a “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,” Zaffino said.
Zaffino then went through a few of the highlights in AIG’s reinsurance getting at the essential 1/1 2023 renewals.
“With respect to property catastrophe placements, we obtained more limit than we purchased in 2022 and we believe we have the lowest attachment points on a return-period measurement for North America windstorm and earthquake amongst our peer group and our modelled exhaust limits are at higher return periods compared to last year for each of our placements,” Zaffino set out.
Adding, “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 said that AIG has actually made modifications to the North America property disaster reinsurance treaties it purchases, to show the enhancements in its portfolio.
Now, for 2023, the retention of AIG’s business cat portfolio sits at a $500 million accessory, while for the Lexington and programs business the accessory point sits at $300 million after this renewal.
AIG’s disaster aggregate reinsurance protection has in fact enhanced at this renewal, with the cover able to react after 2nd occasions in some areas where formerly it hadn’t previously.
Zaffino said, “The property cat aggregate cover that we positioned has 4 retentions prior to connecting and for North America, Japan and rest of world, it now might connect on the 2nd occasion which is an enhancement from 2022.
“Our property cat per-occurrence structures largely stayed the same for international and we believe they are market leading, with Japan’s retention staying flat at $200 million and the rest of the world attaching at $125 million.”
That rest of world accessory is somewhat up from the 2022 renewals’ $100 million.
He continued to explain that, “Many factors improved our overall property cat reinsurance programme, with highlights being, we were able to obtain approximately $6 billion of limit including increasing our per-occurrence excess of loss placement, we maintained low attachment points on a modelled basis, we received support for a $500 million aggregate placement and our overall spend for AIG increased less than 10% on an absolute and risk adjusted basis versus 2022.”
In addition, AIG has actually decreased its reinsurance restrict bought for the personal customer group business, which naturally is now predestined to move over to the brand-new third-party capital supported MGA endeavor that the insurance provider revealed recently.
After “accelerated” portfolio removal to decrease gross direct exposure in cat exposed states, Zaffino said that, “This allowed us to reduce the total limit purchased for the PCG specific cat programme, which partially offset increased pricing pressure due to Hurricane Ian.”
Overall, Zaffino appeared thrilled with the reinsurance renewals, from AIG’s security purchasing perspective.
“Our reinsurance partners maintained their support for AIG with consistent capacity deployment and reinsurance terms, in clear recognition of the quality of our portfolio,” Zaffino said.
Adding that, “The results we attained at January 1 likewise show the worth of the financial investments we have actually made in our reinsurance method and, paired with our relationships and trustworthiness with reinsurance partners, are a testimony to the self-confidence the reinsurance market has in AIG and its management group.
“We value the continuous assistance we have actually gotten from our reinsurance partners.
“As we expect 2023 the world deals with lots of unpredictabilities and in unsure times our function as a market leading international insurer is a lot more crucial.
“With the momentum we have built and the strength of our portfolio, AIG is now extremely well positioned to strategically grow and lead the market by providing thoughtful, expert advice on risk solutions for our clients, distribution partners and other stakeholders.”
