Jul 15, 2021

AIG to sell US$7.3bn of insurance assets to Blackstone

AIG
Blackstone
Insurance
equity
2 min
AIG is selling a 9.9% equity stake in its life and retirement business to Blackstone for US$2.2bn and housing assets for US$5.1bn.

American International Group Inc. (AIG) has agreed to sell insurance assets to Blackstone Group Inc. for a total of US$7.3bn. The sale will be split into a 9.9% equity stake to be sold for US$2.2bn, and affordable housing assets for US$5.1bn.

The insurer and private equity firm have agreed to form a “long-term strategic asset management relationship” for an initial $50 billion from the life and retirement portfolio, with the deal building on two of Blackstone’s initiatives: to build permanent capital by expanding into insurance and to pursue lower-cost rentals for its real estate business. 

AIG-Blackstone asset management deal to grow to US$92.5bn in the next six years 

The asset management deal between AIG and Blackstone is expected to reach a value of US$92.5bn within the next six years. Jon Gray, President and Chief Operating Officer of Blackstone, said: “We are honored to become AIG’s strategic partner, supporting the growth and success of one the world’s top life insurers as a standalone business. We believe our leading private credit origination platform will play an important role to help meet long-term policyholder obligations while maintaining strong credit quality”. 

In May earlier this year, Blackstone told the San Diego Union-Tribune that it was purchasing around 5,800 apartments in San Diego from the Conrad Prebys Foundation for a sale price of over US$1bn. The company said that it was going to keep most of the rentals affordable for residents who make up “80% or less of the area median income”. 

Following this announcement, AIG saw a rise in extended trading by 6.7%, closing at US$46.41 in New York. Meanwhile, Blackstone rose about 4% and closed at US$98.65. 

An attraction to insurance 

Blackstone, as well as other private equity businesses such as Apollo Global Management Inc. and KKR & Co., have been attracted to insurance because it generates a steady stream of investable capital. This expansion in permanent capital helps firms become less reliant on the ups and downs of the private equity model, which normally requires regular fundraising from several institutions.

Investment companies have also benefited from a movement by insurers to dispose of life businesses and reduce non-core assets in order to raise capital. In January, Blackstone purchased a life business from Allstate Corp. for US$2.8bn, enabling the company to oversee a US$28bn portfolio as part of the deal.

 

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Jul 8, 2021

How Wimbledon’s insurance policy prevented pandemic losses

Wimbledon
covid-19
PandemicInsurance
policies
3 min
Since 2003, Wimbledon has avoided financial losses due to its pandemic insurance policy. Here’s how being insured prevented disaster

The COVID-19 pandemic has had a significant negative impact on the sporting world. Events such as Formula One, MotoGP, and several football leagues have either had to be delayed, re-organised, or cancelled altogether. The NBA, NFL and MLB leagues in America lost a total of US$13bn due to the pandemic. 

However, it’s a slightly different story for fans of Tennis and Wimbledon. In their financial statement for 2020 during the height of the pandemic, the All England Lawn Tennis Club (AELTC), the governing body and organiser of the Wimbledon Championships, posted an operating profit of £40.5mn (US$55.8mn). This was preceded the year before by an operating profit of £50.1mn. While the sport did make some losses, they were not as high as other sports. So, how has it been this successful? Well, that’s due to a pandemic insurance policy. 

Wimbledon’s pandemic insurance policy

The All England Lawn Tennis Club has purchased pandemic insurance for the Wimbledon Tennis Championships for the past 17 years, purchasing it for the first time in 2003 following the Severe Acute Respiratory Syndrome (SARS) virus outbreak. 

Having paid £1.5mn every year for the policy, the AELTC is expecting to receive a payout from its insurers of £114mn (US$157mn) for the cancellation of the 2020 tournament, although a final settlement is yet to be confirmed. 

Wimbledon is the only one of the four tennis Grand Slams to have pandemic insurance, and even though the payout will not cover all of its losses, it still puts it in a stronger position than most other elite sporting events.

On the other hand, officials from the French Open reported that they could have lost £230mn (US$316.8mn) in 2020 if their tournament had not been played. Luckily, the event had been rescheduled for September 2020 and did take place. 

Will pandemic insurance cover be available in the future? 

The biggest concern for events like Wimbledon is how long pandemic cover will last and if it will be available in years to come. Some of the issues surrounding this include:

  • Insurers are wary of the significant potential costs of protecting against pandemics. Some insurance experts predict that in the not-so-distant future, pandemics will join the list of commonly excluded risks in general policies such as war, terrorism, and nuclear disaster. The widespread financial impact of such events is in conflict with the basic principle of insurance; that the losses of the few are paid for by the premiums of the many.
  • Other insurance experts have raised the issue of pricing of premiums for pandemic cover, which could be challenging as these policies are likely to become very popular and come with a significant level of risk. Event organisers will need to consider premium pricing and whether the risk can be transferred in some other way, or self-insured.
  • Insurance associations are calling for governments to intervene and create back policies in the event of future pandemics in the same way that they have with flood crises and terrorist attacks. Risk-sharing between the insurance industry and governments can address gaps in coverage, so events organisers should monitor developments on any government-backed schemes.
  • Aside from coverage, events organisers should now also consider their contingency plans to avoid future break-point financial situations, whether these arise from a pandemic or another crisis.

Although Wimbledon said it was difficult to retain their policy for this year’s event, the organisation’s 17-year commitment to the cover is almost certainly going to help them to significantly reduce the impact on the event, not just for 2021 but for at least some of the future. 

 

 Image: Wimbledon.

 

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