AIG to shift Private Client business to third-party capital backed MGA structure

Insurance giant AIG is making good on its promise to develop an even more third-party capital backed structure for its Private Client and high-net-worth property business, partnering with investor Stone Point to launch a new MGA.

AIG’s high-net-worth insurance business, which includes the AIG Private Client group, had already received third-party capital backing, but had been affected by significant losses from weather and catastrophe events in recent years.

This had driven losses to some of the investors backing this pool of Private Client business, while also adding volatility to AIG’s results.

Because of that, AIG’s Chairman and CEO Peter Zaffino had said last year that the insurer was planning to take control of its reliance on and access to reinsurance capital for this high-net-worth property business.

The strategy announced would see a new third-party capital backed structure established to support a shift of cat-exposed property underwriting to the non-admitted market, Zaffino had explained.

AIG had previously set up a Lloyd’s syndicate to support its private client book, which as we explained at the time was set to act as a kind of reinsurance sidecar to the firm’s high-net worth property business.

That syndicate had backing from ILS fund managers and institutional investors, but its loss experience was impacted by wildfire and hurricane activity, driving volatility back to the parent AIG as well, despite the third-party capital support.

Now, AIG appears to be looking to segregate this business away to a managing general agency (MGA) model, with third-party capital support, to maximise on its own origination capabilities, while separating the volatility and reliance on reinsurance capital from itself.

AIG has now entered into a binding memorandum of understanding with a long-standing insurance and reinsurance focused private equity investor, Stone Point Capital LLC (Stone Point).

Together they will form an independent Managing General Agency (MGA) to serve High Net Worth and Ultra High Net Worth markets, and AIG’s Private Client Group (PCG) business will move to this independent MGA platform, while being rebranded as Private Client Select Insurance Services (PCS).

“As previously disclosed, AIG has been exploring structures that, over time, will allow PCG to be supported by third-party capital providers, including AIG and its innovative syndicate at Lloyd’s, referred to as Syndicate 2019.

“By partnering with a world-class private equity firm like Stone Point, we can maximize the strengths of this business and improve product offerings to better serve the High and Ultra High Net Worth markets,” explained AIG CEO Zaffino.

“We are excited to be entering this partnership and look forward to building a top performing MGA committed to excellence in the attractive High and Ultra High Net Worth markets,” added Jim Carey, Managing Director Stone Point. “I am confident that Stone Point’s experience in the insurance industry, coupled with AIG’s risk management expertise and product knowledge, will create significant value for all stakeholders.”

AIG’s Private Client Group leadership team will transfer to the MGA once it is formed, including its President and Chief Executive Officer, Kathleen Zortman. The transaction completion and formation of the new MGA is subject to approvals and negotiations.

For AIG, this is a big step in reducing the volatility associated with this segment of its business, which had been a significant driver of losses from severe weather and catastrophe losses in recent years.

It will join an MGA market that has a renewed focus on partnering with third-party capital, as so many are now looking to emulate more established MGA’s such as Amwins that have been partnering with third-party investors for reinsurance backing for around a decade.

That strategy has become increasingly popular, as it allows MGA’s to take greater control of reinsurance capital relationships, while benefiting from direct access to investor appetite for insurance risks.

AIG can maintain its origination leadership position in this high-net worth insurance business, still getting paid for the sourcing and servicing it provides, while pushing the volatility a step further away from its balance-sheet and shareholders, benefiting from reinsurance relationships with third-party capital providers to absorb that volatility.