AIG, Stone Point Capital to Form Independent MGA for High Net Worth Business

Following through on intentions to move its high net worth business to nonadmitted paper—and some to other capital providers—American International Group entered into a binding memorandum of understanding with Stone Point Capital LLC to form an independent managing general agency.

AIG’s Private Client Group (PCG) business will move to this new independent platform, rebranded as Private Client Select Insurance Services (PCS).

“As previously disclosed, AIG has been exploring structures that, over time, will allow PCG to be supported by third-party capital providers, including AIG and its innovative syndicate at Lloyd’s, referred to as Syndicate 2019. By partnering with a world-class private equity firm like Stone Point, we can maximize the strengths of this business and improve product offerings to better serve the high and ultra high net worth markets,” said Peter Zaffino, AIG’s chair and chief executive officer, in a statement on Monday.

Zaffino first talked about moving AIG’s high-net-worth homeowners business out of the admitted market during a year-end 2021 conference call around this date last year. At the time, he noted the high frequency and severity of catastrophe losses on the book, indicating that the portfolio had experienced 10-time higher cat levels in the last five years than the prior 10.

Related: AIG to Move High Net Worth Homeowners to E&S

During a second-quarter 2022 conference call in August, Zaffino provided an update, reporting that AIG had exited the admitted personal property homeowners market in certain states. “As part of our go-forward high net worth strategy, we’re going to move homeowners and possibly other products in more states to the nonadmitted market. And we plan to set up a structure that, over time, we expect to be supported by third-party capital providers in addition to AIG,” he said.

According to yesterday’s announcement, PCG personnel, including the leadership team led by PCG’s President and CEO Kathleen Zortman, will transfer to the MGA once it is formed.

“We are excited to be entering this partnership and look forward to building a top performing MGA committed to excellence in the attractive high and ultra high net worth markets,” said Jim Carey, Managing Director Stone Point. “I am confident that Stone Point’s experience in the insurance industry, coupled with AIG’s risk management expertise and product knowledge, will create significant value for all stakeholders.”

Completion of the proposed transactions among AIG and Stone Point is subject to negotiation of definitive agreements, obtaining required permits and regulatory approvals. The terms of the transaction have not been disclosed.

In further remarks on last year’s second-quarter conference call, Zaffino stressed AIG’s continued investments in technology to support what he said continued to be an attractive business segment, as well as AIG’s inability to recoup higher loss and reinsurance costs with higher rates.

“Over the last two years and through the second quarter, we’ve already invested $140 million to improve digital workflow, data, [and] a customer interface that will provide enhanced insight and value to distribution partners and policyholders,” he said.

As for the reinsurance cost problem, which he suggested was compounded by cost and availability problems in the retrocessional market, he said, “Currently, the level of reinsurance we purchase and the commensurate modeled ceded profit is a headwind to net premiums written growth and combined ratio improvement. This has been intentional as we are not willing to take volatility on frequency or tail risk on cat in our high net worth business. Adding to this, the inability to pass on increased loss and reinsurance costs through rate increases or limit management largely due to regulatory constraints further deteriorates margin in the short run.”

“But we have made a deliberate decision to continue writing this business as we believe the trade-off is appropriate in the near term given the opportunity we see over the long term.”

In the third quarter last year, AIG reported that net premiums in personal lines fell 11% in North America, primarily due to actions the insurer had been taking in its high-net-worth portfolio. The insurer releases fourth quarter results Feb. 15.