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American International Group Inc. Chief Executive Brian Duperreault said he sees “huge potential” within the insurer’s portfolio for use of a market in which investors trade assets tied to insurance liabilities.

The insurance linked securities (ILS) market, which developed over the past couple of decades as a way for insurers to pass on to investors some of their risks, mainly those associated with natural disasters, is a “good tool,” Duperreault said.

He was speaking at an insurance conference sponsored by investment bank KBW, a unit of Stifel Financial Corp.

“I think you’re going to see more of it, not less of it” within ÌìÃÀÍøÕ¾´«Ã½´«Ã½, Duperreault said.

Insurance companies that participate in the market typically issue catastrophe bonds, or CAT bonds. If no catastrophe hits, the bonds pay out a percentage of the premiums by way of coupons. But if a disaster does occur, the insurance company can use the funds to pay claims to its policy holders.

ÌìÃÀÍøÕ¾´«Ã½´«Ã½’s acquisition of Bermuda-based Validus Holdings Ltd., which was finalized in July, included Validus’ AlphaCat unit, an investment adviser that manages capital for investors and ÌìÃÀÍøÕ¾´«Ã½´«Ã½ through insurance-linked securities and other investments.

The insurance-linked securities market gives insurers another way for their underwriters to match risks they take on with sources of capital to cover potential claims, Duperreault said.

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