AIG leans on commercial & reserve releases for Q2 underwriting gain

AIG followed strength in commercial insurance, including massive prior-year reserve releases, to a 73% increase in group underwriting profit in the second quarter, overcoming falling premiums and claims difficulties in personal lines.

AIG hacked a full 5.1 percentage points (pps) off of its combined ratio in overall P&C operations to hit the 87.4% mark, its first sub-90 reading in over fifteen years. Some $202 million in reserve releases, up from $51 million in the prior-year period, greased the path. Cat losses played no role: net of reinsurance losses of $119 million were flat year on year.

CEO Peter Zaffino (pictured) preferred to call out current year actions: “Meaningful top-line growth, strong renewal retention and new business, intentional improvements in business mix, rate above loss cost trends, coupled with a disciplined and focused approach to minimizing volatility, led to impressive profitability improvement,” Zaffino said of his take on results.

All of the combined ratio improvement came in commercial and North American commercial lines in particular provided the group's only viable premium growth.

At the group level, gross written premium rose by a fractional 1% year on year and net premiums written were flat as 10% growth in North American commercial lines counterbalanced declines across international businesses and in North American personal.

The combined ratio for North American commercial came down by a heady 9.4 pps to 83.6%, the bulk of which came on more favourable prior-year developments, while the current accident year ratio slid by a milder 3.0 pps. The combined ratio in international commercial lines was down 6.3 pps to 82.4%, considerably less reliant on reserve releases.

Improved profitability in commercial contrasted sharply with developments in personal lines where premiums were down by $232 million or 12%, including a very notable 13% decline in international personal insurance and a 4% decline in North America.

An adjusted current year combined ratio in international personal insurance worsened by 1.2 pps to 95.2% on rising losses “driven by mix of business changes, increased claims, as well as a higher acquisition ratio.” Management cited lower production in warranty and a shake-up in private client in pursuit of better risk-adjusted returns.

While adjusted pre-tax income was down on reduced earnings in life and lower investment income, profits had surged by the bottom line, with management making a call-out for net realized gains tied to Fortitude Re funds.

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