Peter Zaffino, CEO of American International Group (AIG), said the company’s ongoing analysis of the increased frequency and severity of natural disasters led to the decision to shift the business from wealthy homeowners to excess and surplus lines in several states.
“The business model just has to change,” Zaffino said on a fourth-quarter earnings call Feb. 17.
A look at the portfolio over the past five years shows disaster levels are 10 times higher than the previous 10 years, for losses of more than $50 million, Zaffino said.
“By the nature of the business, it is exposed to peak areas and is likely to increase in frequency and severity,” Zaffino explained. Secondary perils are now primary perils and the changes are not reflected in the models, putting the “business profitability under pressure”.
Additionally, Zaffino pointed to as factors in the decision a recent increase in exposure in many high-tech areas in the United States and an increase in total insured values - in some cases greater than 100% – as well as chain issues. supply and availability of reinsurance.
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“Recognizing these realities, after careful consideration, we have decided to take significant steps to address this risk issue in our high net worth business to enable us to continue to provide our clients with comprehensive solutions that are more consistent and sustainable,” Zaffino said on the call. “Aggregation and profitability challenges have led us to the conclusion that we need to offer the product to real estate owners through excess and excess lines on a non-admitted basis in multiple states.”
In December, AIG notified California that it would stop offering insurance to recognized high net worth homeowners due to an unsustainable level of aggregation, Zaffino said.
The comments on this line of business were made following Zaffino’s advice on the impact of climate change on all activities. AIG sought to reduce exposure and lower volatility, but “changing weather conditions and increased density in peak areas have caused pressure on aggregation”, making it more difficult for real estate underwriters to obtain returns on the capital deployed.
AIG embarked on a multi-year strategy to reduce the unpredictability of its portfolio, where “fundamental changes” were needed and underwriting standards were revised, Zaffino said. AIG has reduced gross limits by more than $1 trillion in the property, specialty and casualty segments, he added.
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