American International Group and Chubb Corp. have joined with GS Capital Partners 2000, L.P., an investment fund managed by Goldman Sachs & Co.to establish Allied World Assurance Holdings Ltd. with a total equity capital of $1.5 billion.
The holding company will operate Bermuda-based Allied World Assurance Company (AWAC) which is set up to underwrite insurance and reinsurance business worldwide. The announcement, long rumored to be in the works, marks the latest entry in a growing number of new insurance ventures, mostly established in Bermuda, designed to take advantage of the anticipated rise in insurance rates and increased demand for coverage following the Sept. 11 attacks.
According to the announcement AWAC plans to be open for business “no later than December 3, 2001 in order to meet the demand expected in the January renewal period.” AIG CEO Maurice “Hank” Greenberg will be the Chairman of the holding company’s Board of Directors, and Chubb CEO Dean O’Hare will serve as Deputy Chairman.
AIG put up $291 million of the initial capitalization; Chubb and GS Capital each contributed $250 million. The remainder came from outside investors, including Swiss Re. its CEO Walter B. Kielholz will also serve on the Board of Directors.
“Insurance markets have experienced unprecedented demand for a number of coverages, without which businesses cannot operated prudently,” said Greenberg in a written statement. “AWAC will supplement existing market capabilities and capacity, providing a broad range of insurance coverages worldwide for businesses that have large and complex risks.”
The establishment of AWAC by companies the size of AIG, Chubb and Goldman gives even more validity to long-time reinsurance consultant Paul Walther’s view, expressed in an interview in September, that “The bigger ones will get bigger and will be able to realize higher premiums. “
Chubb’s participation in AWAC also raises questions about its continued support for legislation designed to tax Bermuda-based companies to eliminate “unfair tax advantages.” O’Hare, along with Hartford’s CEO Ramani Ayer, has been one of the most persistent and vocal advocates for such legislation.