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AIG working on legacy risk unit build-out

Brian Duperreault, CEO of AIG

It could take 18 months to build the necessary independent infrastructure for American International Group’s Bermudian-domiciled legacy risk unit to compete for third-party business, Brian Duperreault said.

The AIG chief executive officer spoke at a breakfast briefing at the Rendezvous de Septembre networking event in Monte Carlo and described legacy risk as a hot area of the insurance market.

AIG set up DSA Re in February this year to act as a Bermudian-based composite reinsurer of its own legacy risks, backed by some $40 billion in invested assets.

Last month AIG announced that private-equity firm Carlyle Group was to acquire a 19.9 per cent stake in DSA and that the plan was for DSA to become a stand-alone provider of reinsurance, claims management and run-off solutions for long-dated complex risks.

In Monte Carlo, Mr Duperreault said that DSA “gives me great optionality”, according to a report by The Insurance Insider.

Insurers or insurance portfolios that have ceased writing new business are described as being in run-off. According to a report by PwC, global run-off liabilities amount to some $730 billion.

Several Bermudian companies have become specialists in acquiring and managing run-off assets and liabilities, including Enstar Group, Catalina Holdings and Randall & Quilter.

At the same Monte Carlo briefing, Mr Duperreault said recent acquisitions of reinsurance specialists by major insurance carriers are a recognition of the quality of the Bermudian reinsurance industry.

He cited his own firm’s acquisition of Validus Holdings and Axa’s buyout of XL Group as examples.

Mr Duperreault added: “This isn’t a new trend, it comes and goes. The reinsurance market is a bit of an accordion – [it goes through] waves of formations and consolidations.”

Reinsurance buyers should view such deals positively, he added, as putting a wholesale reinsurer into a huge insurance balance sheet gives cedants more faith in the stability of that carrier, the Insider reported.

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,” Mr Duperreault said. “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 a phase of transition, driven by insurtech and ILS disruption, he added.