18 July 2018Insurance

AIG may free up to $5bn through DSA Re

American International Group (AIG) could potentially free up between $2 and $5 billion capital through the legacy portfolio transferred to DSA Re, a wholly-owned Bermuda-based reinsurer formed in February, 2018, according to Morgan Stanley research.

AIG’s legacy portfolio includes the company's run-off general insurance lines (excess workers comp, environmental liability, public entity liability, accident & health, medical professional liability, asbestos & environmental), run-off life & retirement (L&R) lines (whole life, long-term care, and structured settlement, pension risk transfer prior to 2012), and legacy investments.

At year-end 2017, the legacy book contained $38.6 billion L&R reserves, $6.2 billion P&C reserves, and $3.7 billion legacy investments.

DSA Re reinsures around $37 billion of run-off reserves (~$32 billion in L&R and ~$5 billion in P&C). It represents about 80 percent of around $45 billion total run-off reserves. The entity is backed by roughly $40 billion investments or around $3 billion equity.

While AIG did not provide details of the remaining roughly $8 billion run-off reserves outside DSA Re, they could be supported by about $650 billion equity, applying the same reserve to equity ratio as DSA Re. That could potentially free up between $2 to $5 billion for AIG, according to Morgan Stanley analysts.

In addition to freed up capital, the analysts also think the formation of a single legal entity provides optionality for a potential divestiture to third parties focusing on run-off businesses. AIG has monetized $10 billion legacy assets in recent years, including the sales of PICC shares, Korea real estate, and its life settlement book.

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More on this story

18 May 2018   AIG Europe reported a pre-tax loss of £431.5 million for 2017 (ending Nov. 30, 2017) after a negative £171.1 million in the 2016 financial year.
1 August 2018   American International Group (AIG) is selling 19.9 percent of its legacy portfolio DSA Re to private equity firm The Carlyle Group.
6 August 2018   The deal with The Carlyle Group will make it easier for AIG to divest the rest of its DSA Re legacy portfolio, AIG CEO Brian Duperreault said during the group’s second quarter earnings call.