Deployment options make reinsurers attractive: AIG CEO

Recent acquisitions of reinsurance specialists by major insurance carriers are a recognition of the quality of the Bermudian reinsurance industry, according to AIG CEO Brian Duperreault.

Speaking at a PWC breakfast briefing in Monte Carlo on Monday, the executive said recent deals in this mould include the firm’s own acquisition of Validus, and Axa’s purchase of XL Catlin.

However, Duperreault cautioned against reading too much into the recent developments, saying: “This isn’t a new trend, it comes and goes.

“The reinsurance market is a bit of an accordion – [it goes through] waves of formations and consolidations.”

From a reinsurance buyer’s perspective, such deals should be seen positively, he went on, as putting a wholesale reinsurer into a huge insurance balance sheet gives cedants more faith in the stability of that carrier.

For AIG, the attraction of the Validus deal was that it gave the firm capital flexibility and a source of market intelligence.

“There are times when the reinsurance market is where you want to deploy,” he explained. “If you don’t have both [insurance and reinsurance capabilities], you can’t move the capital around.”

The reinsurance market is here to stay despite being in a phase of transition, driven by InsurTech and ILS disruption, he concluded.

Duperreault said that within the operations of a risk originator, ILS platforms could take on an even greater life than they had by developing within reinsurance businesses.

AIG’s acquisition of Validus provided the insurance giant with its own ILS platform: AlphaCat.

Duperreault went on to say that AIG could “experiment” with going into the market with ILS products in the future.

He also raised the prospect of the ILS market adapting itself to longer-tail risk via parametric transactions.

The AIG CEO touched on the topic of cyber risk, which he described as one of the insurance market’s hottest risks, even though pricing was only “so-so”.

But a bigger concern for the industry was hidden or silent exposures, which he said the sector had to address. 

Legacy risks were another hot area in the market, Duperreault noted, prompting investor interest after AIG set up legacy carrier DSA Re initially to warehouse its liabilities.

“It gives me great optionality,” he said of the vehicle, now part-owned by Carlyle.

Duperreault sounded a cautious note on how long it would take DSA Re to set up independent infrastructure to allow it to compete in taking on third-party legacy risks, saying it could be an 18-month process. 

This same patience would be needed when it came to completing AIG’s turnaround, he said. “These are not overnight fixes. These are fundamental changes that need to take place.”