AIG leverages Lexington E&S tool chest to beat rise in loss cost trend

Inflation continues to drive upward moves in loss cost trend at  AIG, but in a move which officials insist remains restricted to short-tail lines that are beaten by rate gains and well-addressed growth into inflation-mitigated product.

“Property businesses have been more clearly affected,” CEO Peter Zaffino said of AIG’s second consecutive hike in loss cost trend to 6% following a similar half-point upgrade to 5.5% just one quarter prior.

Rates have kept well ahead of the pace to date and AIG is equally or more concerned with shifting business into lines or classes with built-in cushions against rising claims costs.

“Momentum continued in global commercial on overall rate increases of 7%, and in the aggregate rate continued to exceed loss cost trend,” Zaffino said of what he called the fourth consecutive year of rate over loss cost trend.

Value indexation of various forms may be the first line of defence. Adjusted for exposure growth driven purely by various forms of indexing underlying insured values, AIG sees North American loss cost trend closer to 4%.

AIG's surplus lines insurer Lexington may be key to that battle. The non-admitted structure allows “a lot of interesting terms and conditions” that can be leveraged to ensure the underlying inflation-sensitive exposure basis keeps pace, AIG's global chief actuary Mark Lyons (pictured) argued.

And Lexington is where AIG is putting its growth. Net premium written at the u nit rose 31% year on year in Q2 to increase its stake in the AIG pie. Lexington claimed 18% rate increase, including 17% in wholesale property plus eye-opening gains in some financial lines and cyber.

Longer-tail lines remain comparatively clear of the inflation menace, suggesting no reason for inflation to injure the pace of reserve releases.

“In the second quarter, trends in casualty and other liability lines continue to show no obvious impact, neither on internal or external data, to support a large move on loss costs,” Zaffino said.

Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.