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American International Group Inc. said it has entered into a two-year reinsurance arrangement with Swiss Re Ltd., under which a share of AIG's new and renewal U.S. casualty portfolio will be ceded to the reinsurer as part of its strategy to become a more profitable insurer.
In a Wednesday statement announcing the deal, AIG said the move is “consistent with the plans announced” by AIG in its Jan. 26 strategic update to investors. During a slide presentation in that update, AIG said it would “expand current utilization of reinsurance and other risk mitigating strategies to further enhance capital efficiencies.”
During the update, AIG said that it intended to return $25 billion in capital to investors over the next two years. The insurer had been under pressure from investor Carl Icahn and others to break into three separate companies — life, mortgage insurance and property/casualty — in order to enhance shareholder value and be removed from the federal government's list of systemically important financial institutions, which are subject to heightened federal oversight. AIG is one of three insurers — the others being Prudential Insurance Co. and MetLife Inc. — designated as SIFIs.
“Swiss Re and AIG have had a strategic relationship for a number of years, and the trust and knowledge-sharing between the two companies facilitated this mutually attractive economic transaction,” said Rob Schimek, CEO of AIG Commercial, in the announcement. “We have been very clear about our desire to partner with our reinsurers to help achieve our strategic objectives, and this agreement with Swiss Re is an example of what is achievable with longstanding counterparties.”
“The reinsurance arrangement is an important step in AIG's strategy to improve its commercial insurance diversification and return on equity, and it highlights AIG's focus on capital efficiency,” AIG said in the announcement.
A spokesman for AIG declined to comment further on the deal.
American International Group Inc. on Tuesday said it plans to undertake an initial public offering of up to 19.9% of its United Guaranty Corp. mortgage insurance unit as a first step toward a total separation of the unit.