AIG reports $6.7bn Q4 loss due to US tax reform

American International Group (AIG) reported a net loss of $6.66 billion for the fourth quarter of 2017, compared to a net loss of $3.04 billion in the prior-year quarter.

The fourth quarter of 2017 net loss included a charge of $6.7 billion related to the enactment of the Tax Cuts and Jobs Act.

The Tax Cut and Jobs Act of 2017 (US Tax Reform) was enacted on December 22, 2017, reducing the statutory federal income tax rate from 35 percent to 21 percent, effective Jan. 1, 2018. The changes were expected to result in immediate one-off charges for insurers but with longer-term positive effect on profits.

AIG’s adjusted after-tax income was $526 million for the fourth quarter of 2017, compared to an adjusted after-tax loss of $2.8 billion in the prior-year quarter.

“The fourth quarter was another important step forward in positioning AIG for the future,” said AIG CEO Brian Duperreault.

“Since I joined the company in May, we’ve added to our talent base, assessed and initiated underwriting actions, and established a new operating structure. 2017 represents a starting point from which we expect to build and 2018 will be a year of execution. Our actions to diversify our business and pursue profitable growth were further reflected in our January announcement of the acquisition of Validus,” Duperreault said.

In January, AIG has entered into a definitive agreement to acquire Bermuda-based Validus Holdings for $5.56 billion.

Through the Validus acquisition, AIG adds a reinsurance business and re-enters the Lloyd’s market by adding Talbot after shedding Ascot in 2016.

AIG’s general insurance segment recorded adjusted pre-tax income of $13 million in the fourth quarter of 2017. This figure included $762 million of catastrophe losses, of which $572 million related to the wildfires in California.

“Our fourth quarter and full year 2017 results were significantly impacted by catastrophe losses,” Duperreault said. “Despite full year record catastrophe losses of $4.2 billion, we delivered approximately $1.5 billion in pre-tax income and over $3.0 billion in adjusted pre - tax income. Importantly, our fourth quarter reserve review resulted in modest net adverse development and our General Insurance North America Commercial business showed notable improvement and reserve stability. Personal Insurance and Life and Retirement operations continued to deliver solid performance and benefit from their diversified offerings,” Duperreault noted.

Net premiums written in the general insurance division shrank 10 percent year on year to $5.89 billion in the fourth quarter of 2017. The combined ratio improved to 113.3 percent from 182.5 percent over the period. The fourth quarter 2017 loss ratio was 78.3, for the full year it was 83.2. The accident year loss ratio, as adjusted was 65.2, a 2.3 point improvement compared to the prior year quarter. For the full year, the accident year loss ratio, as adjusted was 63.0, a 1.1 point increase from a year ago.

AIG has formed a Bermuda-domiciled legal entity named DSA Reinsurance Company to act as AIG’s main run-off reinsurer. DSA Re’s primary purpose is to reinsure AIG’s Legacy Life and Retirement and Legacy General Insurance run-off lines. DSA Re will allow AIG to derive operational efficiencies by consolidating its legacy books in one legal entity and under one management team, while continuing to honour all policyholder commitments and client relationships. The amount expected to be reinsured upon receipt of all regulatory approvals represents approximately $37 billion or over 80 percent of Legacy total insurance reserves and will be backed with approximately $40 billion of invested assets managed by AIG Investments.

Since its establishment, Legacy has returned $10.0 billion of capital to AIG Parent, surpassing its original goal of $9.0 billion. Total book value impairments and losses on sales from Legacy investments that were sold from Sept. 1, 2015 through December 31, 2017 totalled $1.0 billion.

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