Disciplined 1/1 renewal expected, but attachments not expected to reduce: AIG CEO

AIG CEO Peter Zaffino explained today that he anticipates property catastrophe reinsurance renewals at January 1st 2025 will be disciplined, but he is not expecting reinsurers to lower attachment points for insurers.

Speaking during the AIG third-quarter earnings call today, Zaffino was keen to point out that AIG’s property catastrophe reinsurance attachment points are already low for the industry.

“We’ve completely transformed our business over the past five years, and this is the new AIG. AIG’s strategy to manage volatility through our gross underwriting actions and our approach to reinsurance, including our decision to maintain the lowest net retention amongst our global competitors, has delivered significant benefits for the company and positions us well for the future in an environment with significantly elevated insured loss activity and modelling uncertainties,” Zaffino explained.

He highlighted that AIG’s shares of global insured catastrophe losses has declined, from around 4% back in 2012 to a forecast this year that it will be below 1%.

Between 2017 and 2022, Zaffino said that AIG estimates roughly 50% of global catastrophe losses were absorbed by the reinsurance market, but in 2023 around 90% were retained by primary insurers.

He further explained, “The significant reset in the property cat reinsurance market in 2023 means that reinsurers, generally, have higher attachment points, provide named perils and have significant retro protection, and therefore are likely to make an underwriting profit on their global catastrophe portfolios in 2024 given the current loss levels and the benefit of reinstatement premiums.

“With this expectation of underwriting profit, the overall reinsurance market should remain healthy.”

Going on to discuss expectations of market conditions at the January 2025 renewals, Zaffino said, “I think the industry has become experts on reinsurance pricing and I expect that the market will be orderly, but I don’t expect attachment points are going to come down for the industry.”

He said reinsurers are expected to remain disciplined and focus on deploying capital to companies like his own, with AIG seen as having a higher-quality portfolio.

“Given that this has become the industry norm, as I mentioned earlier, industry losses from increased frequency and severity will continue to be realised by primary insurers and will not be solved by the reinsurance market in 2025,” Zaffino said.

Moving on to discuss the AIG reinsurance tower, Zaffino also commented that, “I don’t think we’re going to have a material change in our structures, of course, we have low attachment points, it’s very complex, but we certainly have the balance sheet we certainly have the risk appetite to take a little bit more net in the event that we want to.

“But we like having low attachment points on severity, and we like having our aggregate that protects us from frequency.

“So we manage our net according to our risk appetite. It’s within expectations, and I would expect us to continue the same strategic philosophy.”