AIG CEO Frees Up Capital With Swiss Re Risk-Share Deal

American International Group Inc., the insurer stung by losses on higher-than-expected claims costs, said Swiss Re AG has agreed to take on some of the company’s risks tied to casualty policies.

The two-year reinsurance deal will help AIG be more capital efficient and improve the return on equity at its commercial insurance business, the New York-based company said Wednesday in a statement, without providing terms of the arrangement. Reinsurers provide coverage for primary carriers.

AIG Chief Executive Officer Peter Hancock told investors in January that he is seeking to return $25 billion in capital to shareholders over the next two years, and that he plans to use reinsurance and “other risk mitigating strategies” to improve the commercial property/casualty business. The company has been under pressure from activist investor Carl Icahn, who faulted Hancock for failing to meet ROE targets.

“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,” Rob Schimek, CEO of AIG’s commercial business, said in the statement. He was promoted in December to lead the unit.

The loss ratio at Schimek’s business was a focal point during the insurer’s fourth-quarter conference call. AIG has been reducing exposure to casualty coverage, and took a $3.6 billion reserve charge in the last three months of 2015 tied to policies sold in prior years.

Mumenthaler’s View

Christian Mumenthaler, a 17-year veteran of Swiss Re, was named CEO of the Zurich-based company last month. He said the AIG deal would help his company improve diversification.

“We know this portfolio, the leaders, and the underwriters very well and believe in AIG’s plans,” Mumenthaler said in the statement. “We are happy to accompany them on this journey by taking a significant position in this business.”

Swiss Re is also in talks to buy a life reinsurer from Citigroup Inc., people familiar with the matter told Bloomberg News this week.