AIG CEO: Role for ILS platforms within reinsurers

ILS platforms could take on an even greater life by developing within reinsurance businesses, according to AIG CEO Brian Duperreault, speaking at a PwC breakfast briefing in Monte Carlo.

With Validus bringing AIG an ILS platform AlphaCat, AIG could in the future go into the market with ILS products, he said.

“We’re looking to be able to do that experiment.”

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

Recent acquisitions of reinsurance specialists by major insurance carriers are a recognition of the quality of the Bermudian reinsurance industry, Duperreault continued.

As well as the firm’s own acquisition of Validus, there is also Axa’s purchase of XL Catlin.

But the AIG CEO said he would not read too much into the developments.

“This isn’t a new trend; it comes and goes,” Duperreault said. “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 are a positive move as putting a wholesale reinsurer into a huge insurance balance sheet gives cedants more faith in the stability of that carrier, he added.

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 transition due to InsurTech and ILS disruption, he said.

Meanwhile, InsurTech disrupters are not generally looking to compete in the capital side of the insurance business, by holding risks, he noted. “They want us to do that,” he said, adding: “We’re an industry that has to exist.”

He 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 than pricing of cyber risk is hidden or silence exposures, which he said the sector had to address. 

Legacy risks were another hot area in the market, Duperreault noted, leading to investor interest after the firm 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.

But he 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.”