AIG’s AlphaCat lifts ILS assets under management to $3.6bn

While many insurance-linked securities (ILS) investment managers saw their assets under management (AuM) shrink at the end of last year, American International Group’s (AIG) ILS and collateralized reinsurance investment manager entity, AlphaCat Managers, grew its AuM slightly to $3.6 billion.

AlphaCat Managers ended 2021 with the $3.6 billion of ILS assets under its management, an increase from $3.5 billion at the end of the third-quarter of the year.

It suggests AlphaCat has had some success in raising fresh capital in time for the January 2022 reinsurance renewals and that this will have also helped the ILS manager to provide greater continuity to its ceding clients, by replenishing capital that may otherwise have been trapped after loss activity experienced last year.

AIG’s investment stake in its ILS manager unit AlphaCat did not change, remaining at $100 million, with the majority of the AuM, $3.5 billion, sourced from third-party investor clients.

AlphaCat, like the rest of the ILS market, was impacted by the major catastrophe losses of 2021.

Insurance-linked securities (ILS) assets under management at AlphaCat Managers had reached $4.2 billion at December 31st 2020, but then fell to $3.8 billion by March 31st 2021, with first-quarter catastrophe loss activity, especially the US winter storms, expected to have been one driver of that fall. AlphaCat’s ILS assets then fell further, to $3.5 billion by the end of Q3 2021, with Irma and the European floods potential causes.

But the manager seems to have at least come through that with an ability to continue attracting new capital from third-party investors, who see the benefits of an allocation to an ILS or reinsurance investment linked to one of the world’s largest insurance firms, AIG.

Investment losses have dented AlphaCat’s fees through, through the final quarter of 2021, which is likely down to the realisation of losses from the third-quarter, as well as perhaps some losses increasing during the period.

For Q4 2021, AlphaCat activities resulted in -$2 million of investment income being reported by AIG, although this consisted of $6 million of positive investment fee income, but that was eclipsed by -$8 million of losses from direct investment activities undertaken by AlphaCat.

For the full-year 2021, AlphaCat generated $25 million of fee income from its asset management activities for parent AIG, but losses from direct investment activities came out at -$28 million for the year, resulting in -$3 million of net loss for AIG from AlphaCat activities for 2021.

As with all owners of ILS management operations, 2021 has been another challenging year for AIG, but the losses are not significant when stacked up against its own earnings, and the benefits, efficiency and flexibility provided by management of third-party reinsurance capital likely outweighs the small investment decline.

AIG reported net income of $4.38 per common share for Q4 2021, compared to a net loss of $0.07 per share in the prior year quarter, while its General Insurance division reported adjusted pre-tax income of $1.5 billion, thanks to a combined ratio of 92.4%, which was 10.4 points improved over the prior year quarter thanks to strong underwriting results across the portfolio, and lower catastrophe losses, net of reinsurance.

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