American International Group CEO Peter Zaffino defended the company's reinsurance-heavy approach during the KBW Insurance Conference on Wednesday, as property markets face continued rate pressure following years of significant increases.
Zaffino argued that AIG's substantial reinsurance purchases over the past several years offer strategic advantages during market cycles. Running a global business "in the low 80s combined ratio with what would be technically considered a lot of reinsurance," he said he prefers predictability and volatility containment over exposure to weather-related losses.
The CEO explained that declining reinsurance costs actually benefit AIG because these expenses are embedded in their product pricing. When reinsurance costs decrease while rates decline, AIG maintains margin protection that competitors using higher retentions may lack, he argued.
"If our sort of cost of goods sold is that of reinsurance is coming down at or more than the original pricing, well, then really, I'm only focusing on the attritional," Zaffino said. He contrasted this with carriers who self-fund catastrophe exposure through AALs, arguing they face margin compression when rates decline without offsetting cost reductions.
Property rates have experienced headwinds in 2025, though Zaffino noted casualty markets remain strong, particularly in excess casualty, while financial lines have stabilized after rate reductions.
AIG reported robust second-quarter results with adjusted after-tax income per share increasing 56% year-over-year, driven by 46% growth in underwriting income. The company achieved a core operating ROE of 11.7% and a calendar year combined ratio of 89.3%, despite significant catastrophe activity including wildfires.
Both S&P and Moody's upgraded the financial strength of AIG's insurance subsidiaries, marking the first Moody's upgrade since 1990. The insurer returned $4.5 billion in capital to shareholders year-to-date and maintains a debt-to-total capital ratio of 17.9%.
AIG took proactive reserve strengthening actions in Q2 on older accident years, not due to emergence but as conservative practice. Zaffino emphasized the company's cautious reserve adequacy approach, particularly for legacy exposures, while noting favorable development continues on recent accident years.
AI Implementation Accelerates Beyond Pilots
AIG has moved from testing to live deployment of "Agentic AI" technology across underwriting operations. The company rolled out AI components to financial lines and plans Lexington Insurance deployment by year-end, with broader commercial rollout targeted for 2026.
"We're actually live now on things," Zaffino emphasized, distinguishing AIG from competitors still testing. The AI focuses on processing structured and unstructured data to reduce cycle times and improve underwriting efficiency.
At Lexington Insurance, submission volumes increased dramatically while binding ratios initially dropped to 2%. Zaffino noted that returning to historical binding ratios around 6% could generate over $1 billion in growth potential.
The AI advancement reflects partnerships with major technology companies including Microsoft, Meta, Alphabet, and Amazon, which committed over $400 billion in AI capital expenditure for 2025. A
IG also works with Palantir and other specialized firms.
Zaffino expects significant acceleration in AI deployment throughout 2026, with optimism about non-linear rollout possibilities across multiple business segments simultaneously.
