Business

AIG’s new legacy business to bring jobs

  • New business: AIG has set up DSA Re in Bermuda to manage its legacy businesses

American International Group says it expects its new Bermudian-based run-off company to bring jobs to the island.

The new entity, known as DSA Reinsurance Company, will manage four-fifths of AIG’s legacy business and will be backed by $40 billion of invested assets.

DSA Re will manage the group’s life, as well as property and casualty run-off business, with total reserves of about $37 billion.

Asked about the potential for new jobs, an AIG spokesman told The Royal Gazette: “As the functional build-out of DSA Re continues, there will be an increase in the number of employees based in Bermuda.”

New York-based AIG has had a presence in Bermuda for 70 years and is based in the American International Building on Richmond Road.

Last month, the company announced it agreed a $5.6 billion all-cash deal to buy Bermudian reinsurer Validus Holdings, which operates out of the neighbouring building, and will further increase the group’s Bermudian interests.

AIG has been led since May last year by Bermudian-born chief executive officer Brian Duperreault, who has spent a large part of his career in the Bermuda insurance market, with Ace Group and later with Hamilton Insurance Group, a company he founded and led.

After AIG spent most of the past decade shedding assets and paying off a massive US government bailout that saved it from collapse after the 2008 global financial crisis, Mr Duperreault has vowed to bring back growth.

An AIG spokesman said DSA Re would be managed in line with the Bermuda head office requirements.

He added: “The Bermudian insurance businesses of AIG each have distinct business models, and AIG believes it will derive better value from those businesses by allowing them to operate largely independently of each other, to compete with their respective peers and focus on their respective markets.

“Over time, there may be some sharing of back-office resources and facilities in Bermuda where it makes economic and strategic sense.”

He added that AIG’s Legacy Team, established in 2016, and their support functions would be responsible for managing DSA Re.

Selection of Bermuda as the domicile for DSA Re came after AIG had reviewed various potential jurisdictions and structures, the spokesman said.

Bermuda, he added, had emerged as a logical choice for several reasons:

• Bermuda is the domicile of many key run-off comparables.

• Bermuda is one of the few jurisdictions that allows for life and non-life reinsurance liabilities to be housed in a single entity, allowing efficient management of liabilities on a portfolio basis and benefiting from diversification of the business lines.

• Credibility and reputation of the Bermuda Monetary Authority as insurance regulator.

• AIG’s current and historical presence in Bermuda.

The news of DSA Re’s formation came in AIG’s earnings statement for the fourth quarter of last year, which showed a loss of $6.7 billion.

However, the net loss was roughly equivalent to a one-off charge related to US tax changes, while the underwriting loss at AIG’s North American business narrowed 94 per cent to $316 million.

AIG reported $762 million in catastrophe losses during the fourth quarter and a record $4.2 billion for the whole of 2017.

Sid Sankaran, AIG’s chief financial officer, said in a conference call with analysts last Friday: “We formed a Bermuda-domiciled legal entity, named DSA Reinsurance Company Ltd, to reinsure our legacy life and non-life run-off lines.

“By combining these run-off lines into a single well-capitalised legal entity, we were able to achieve operating synergies and strong diversification in assets. Legacy remains non-core and will be managed by a team with extensive run-off expertise.”