Duperreault wants to use more ILS to reduce AIG volatility

American International Group (AIG) CEO Brian Duperreault is in the process of reducing volatility of the company’s portfolio and insurance-linked securities (ILS) capabilities acquired through the Validus takeover are expected to help to reach this goal.

American International Group (AIG) has completed its acquisition of Bermuda-based Validus Holdings in July 2018. The Validus acquisition includes AlphaCat which manages $3.2 billion on behalf of clients by investing in ILS products.

“There is huge potential for the whole ILS market within our portfolio,” Duperreault said during the KBW 2018 Insurance Conference.

Underwriting is in its essence looking at risk and matching it with capital and AlphaCat gives AIG another capital to use and match risks, Duperreault explained.

“We're a risk originator,” he said.  “There should be ways where we can actually construct business, which would be immediately matched with the ILS market,” he added.

Duperreault also expects to be able to reduce the cost of capital by matching risk with capital markets. “I think this can be quite a useful tool,” he said. “It does reduce volatility” and “it gives you much more flexibility,” he explained.

Duperreault predicted that here will be more use of ILS at AIG and also elsewhere in the market. At the same time, AIG is still looking at how to reorganise its reinsurance programme.

“I think there is still some more work to be done there,” Duperreault said.

In order to reduce the volatility of its portfolio AIG is adapting rate levels where needed, reducing limits and looking to define the right attachment points for the risk.

“All that is work in progress. But we're getting there,” Duperreault said.

“Last year we had $4 billion worth of cats and basically no recovery. So now I go out and I buy. We go and buy reinsurance of significance,” he explained.

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