AIG profits dampened by nat cats in Q1

American International Group (AIG) reported a drop in net income to $938 million in the first quarter of 2018 from $1.2 billion in the same period a year ago as natural catastrophes impacted the results.

The general insurance operations were hit by $376 million of catastrophe losses primarily related to the California mudslides, US winter storms and the Papua New Guinea earthquake, as well as $135 million of severe losses, according to a company statement.

The combined ratio in general insurance deteriorated to 103.8 percent in the first three months of 2018 from 99.8 percent in the same period a year ago. The operations delivered an underwriting loss of $251 million compared to underwriting income of $12 million a year ago. Adjusted pre-tax income in general insurance halved to $510 million from $1.06 billion over the period.

Net premiums written in general insurance North America decreased by 12 percent year on year, largely driven by the net impact of our reinsurance program and the strategic portfolio actions in US casualty and property.

AIG has been addressing issues with its US casualty business. In order to address the problem, AIG entered a $9.8 billion adverse development reinsurance with Berkshire subsidiary National Indemnity Company (NICO) in 2017. The agreement covers 80 percent of substantially all of AIG’s US commercial long-tail exposures for accident years 2015 and prior, which includes the largest part of AIG’s US casualty exposures during that period. More recently, Berkshire has  increased the estimated claim liabilities under a major reinsurance contract with AIG by approximately $1.8 billion.

“In the first quarter we made progress towards delivering consistent results with net favourable reserve development, a stable general insurance accident year loss ratio, and solid life and retirement results,” said AIG CEO Brian Duperreault.

“Our emphasis on fundamental underwriting practices, increasing accountability across our businesses, and disciplined decision making is taking hold. In the quarter, we added world class talent across the organization, particularly in general insurance to position AIG for long-term profitable growth,” Duperreault added.

Overall, premiums declined to $7.28 billion in the first quarter of 2018 from $7.78 billion in the same period a year ago. AIG is in the process of acquiring Bermuda-based Validus Holdings. In January, AIG unveiled its plan to acquire Validus for an aggregate transaction value of $5.56 billion, funded by cash on hand. AIG started in March raising $2.5 billion in debt to fund the acquisition.