Peter Zaffino, Chief Executive Officer (CEO) of global insurer AIG, has discussed the importance of the firm’s reinsurance purchasing strategy for its US property portfolio, revealing that so far in 2025, risk-adjusted rate decreases for reinsurance are at or greater than the pricing decreases on AIG’s primary business.
Following the release of a strong set of results for the second quarter of 2025, AIG held an earnings call with analysts, during which CEO Zaffino provided some detailed insights into the carrier’s underwriting approach to US property.
“Our US property business has been one of the best stories for AIG during the repositioning of our underwriting portfolio. What used to be a highly unprofitable portfolio with massive limits, combined ratios of 120 or greater, and significant volatility accompanied with outsized catastrophe losses, has now become one of the most profitable lines of business for AIG,” said Zaffino.
He explained that even in the current environment, the US property portfolio has performed “exceptionally well” across both across Retail Property and Lexington wholesale large account, where pricing decreases have been 11%, and Lexington Middle Market property, where pricing was largely flat.
“2018 retail property and Lexington wholesale large account cumulative rate increases have been 135% and 120%, respectively. Lexington Middle Market has had cumulative rate increases of 90%. Additionally, over the last several years, accident year combined ratios, as adjusted, have been below 60% on average for both Retail and Wholesale Property.
“Further, an important distinction, approximately 90% of our large account property, Retail and Wholesale, is placed on a shared layer basis. Which means non-concurrent pricing and non-concurrent terms on that placement. This allows us to establish differentiated pricing, policy wording coverages and exclusions, for limits we deploy for each risk,” he explained.
The CEO emphasised that when AIG reports it rate decreases or increases, it is against the pricing established for its layer, rather than the index of the average pricing of the market at placement.
Of course, AIG continually monitors and reviews the quality and profitability of its property portfolio, and Zaffino explained that in order to do this at a high level, it’s vital to have a technical view of a number of components, including catastrophes and reinsurance.
“You need a proper analysis of potential cat layers using extensive modeling, along with an accurate view of exposure and appropriate funding for cat risks, including comprehensive reinsurance at all appropriate return periods and tail risk. You should review average annual losses, or AAL for cat losses that are within your net retention, below your property cat reinsurance program. Typically, for lower return periods, net retained catastrophe requires an appropriate risk load. Also important are vertical, single losses that are typically protected with property per risk reinsurance. Finally, you should consider attritional loss selections with an appropriate risk margin,” he said.
According to Zaffino, when analysing each of the above components, AIG’s approach has been conservative with respect to each variable, and the reason for this is that AIG has a “clear and detailed understanding of our fully loaded reinsurance tax cost.”
Zaffino explained: “We’ve been able to purchase reinsurance at low attachment points and have high exhaust limits, and importantly, these costs are fully embedded into our insurance pricing. This year, our risk-adjusted pricing decreases for reinsurance are at or greater than the pricing decreases on our primary business, limiting the impact of the rate environment on our net loss ratios. This would not be the case if you chose to take these layers net. Even with a significant increase in frequency of cats, AALs have been roughly equal to or greater than our actual experience over the past three years.
“For single large losses, we have significant protection on property per risk, with reinsurance attaching a $25 million and exhausting in excess of $600 million. This is another strategic choice to reduce volatility. We have fully embedded this cost into our pricing.
“We’ve also benefited from risk adjusting pricing decreases on our property per risk treaty. The outcome of all of these variables is that our attritional loss ratios over the past three years have performed better than expected accident year loss ratio picks.
“As I noted, another critical component of the loss projection is how much risk margin you have embedded as part of the ultimate accident year loss ratio. In our case, that margin has continued to expand as a result of our exceptional underwriting and cumulative rate increases.”
During the Q&A, Zaffino was questioned on the reinsurance comments, and so reiterated that AIG is a big buyer of reinsurance on property.
“In a market like this, we benefit, because if the rates are going down on reinsurance, on cat as an example, that does benefit the original pricing. If you’re funding it net, what I was saying is if I look at our own AALs, like, if the market gets softer, I don’t reduce the AALs, they stay the same. And so, what I was trying to say is that when you look at the amount of reinsurance that we would purchase, we’re getting risk-adjusted reductions that are at or greater than what we’re pricing our original policies, and that’s a benefit.
“So, there’s no headwind there. But if you’re funding it net, your AALs are still the same, so you have to take a look at your attritional a little bit sharper, I believe, because the overall pricing is going down. If you don’t have the commensurate rates going down on your catastrophe, that’s a headwind. We don’t have that,” said the CEO.
AIG has structured its US property portfolio to manage through various cycles, noted Zaffino, and going forward, the company is looking to maintain the portfolio, which is evidenced through its strong retention.
“And when market conditions warm, we have the ability to pivot quickly. When you take into consideration all of these components of a property portfolio, we expect, in the current environment to deliver strong profitability in both Retail and Wholesale property,” said Zaffino.
