September 7, 2018

Duperreault sees huge potential for ILS

As insurance-linked securities head for a record year of issuance, Brian Duperreault has spoken of the huge potential ILS presents for American International Group.

He said it is a way to reduce volatility for the company, and is something that will increasingly feature within AIG.

In July, the company concluded its $5.5 billion acquisition of Bermudian-based Validus Holdings, including its alternative capital unit AlphaCat. At the time, Mr Duperreault singled out AlphaCat as having “great growth potential”.

The chief executive officer of AIG remains upbeat on the potential of AlphaCat and ILS.

There has been $11 billion of ILS and catastrophe bonds issued so far this year, reported last month. That puts this year on track to beat last year’s $12.56 billion record.

Speaking at the KBW Insurance Conference in New York City, Mr Duperreault said AIG’s catastrophe bond programme had been in place since last year.

Referencing the company’s reported catastrophe losses of $4.2 billion last year, he said: “We had no recovery. Now we go out and buy reinsurance of significance.”

Earlier he explained that a major focus for the company has been dampening down volatility and bringing back stability for the company. He took over as CEO of AIG in May 2017, and said he had found the organisation’s structure “made no sense — we were not organised to win. We had to sweep that all out”.

He described AIG as now being in the execution phase and getting its expense levels “where they need to be”. He added: “By the end of the year we will be in an underwriting profit position, which is a milestone.”

A member of the audience asked him: “You talked about reducing volatility of the business. I understand Validus is a pretty volatile company, so how will the acquisition reduce volatility as a result?”

Mr Duperreault said Validus had made an underwriting profit in catastrophe last year. “So they reduced volatility. They are very good at what they do. I like businesses that have some extreme to them, providing you get paid for that. It’s volatile, but it builds book value over time.”

He said that with one bad year and 10 great years “life is good”, and added: “Validus’s track record is excellent in being able to play in that game brilliantly. That’s why I want them in. Now, there are other businesses where I was not convinced we were getting paid for the volatility.”

Mr Duperreault was asked about Validus’s alternative capital manager AlphaCat. He said: “There is huge potential for the whole ILS market within our portfolio. When you think about underwriting — it is looking at this risk and matching it with capital. And this just gives us another [source of] capital to match it.”

Mr Duperreault said it added more flexibility and that it will, over time, be a useful tool; he expects AIG and others make more use of ILS.

“It does reduce volatility, and Validus has done a very good job of using their market presence — a piece of business comes in and for them it better fits the ILS market than their own.”

The two-day KBW Insurance Conference ended yesterday.


Sign up for the latest ILS Bermuda news and alerts


Join the conversation on our social media channels below: