Q3 profits dip at AIG on back of cat losses

Profits dipped at American International Group (AIG) in its third quarter results driven by high levels of cat events impacting profits in its general insurance unit.

The insurer’s net income was $281 million for the third quarter of 2020 compared to $648 million in the prior year quarter.

General Insurance reported $790 million of pre-tax cat events, net of reinsurance, or 13.5 combined ratio points, resulting in a General Insurance combined ratio of 107.2 percent compared to 103.7 percent in the prior year quarter.

Brian Duperreault, AIG’s CEO, said: “We are pleased to report AIG’s solid third quarter results as we embark on an important phase of our journey to become a top performing company. In General Insurance, the accident year combined ratio, as adjusted, improved for the ninth consecutive quarter, and the high frequency of natural catastrophes and COVID-19 had a limited impact on financial results. Life and Retirement’s results continue to demonstrate that it is a market-leading franchise, with a strong improvement in adjusted pre-tax income from last year. Our recent leadership transition and corporate structure announcements marked an important milestone for AIG made possible by the significant foundational work our colleagues have successfully executed on over the last three years.”

In its general insurance unit, third quarter APTI of $416 million was comprised of an underwriting loss of $423 million and net investment income of $839 million compared to APTI of $507 million in the prior year quarter. The underwriting loss of $423 million included $790 million of CATs, net of reinsurance, including $605 million of non-COVID-19 CATs primarily relating to windstorms and tropical cyclones in North America and Japan, as well as wildfires on the US West Coast, and $185 million of estimated COVID-19 losses, primarily related to Travel, Contingency and Validus Re compared to $497 million of CATs, net of reinsurance, in the prior year quarter.

Unfavorable net prior year loss reserve development, net of reinsurance, totaled $13 million, and reflects $53 million of favorable amortization from the Adverse Development Cover (ADC) compared to favorable net prior year loss reserve development, net of reinsurance of $3 million in the prior year quarter which reflected $58 million of favorable amortization from the ADC.

The General Insurance combined ratio was 107.2, including 13.5 points of CATs and reinstatement premiums, of which 3.1 points related to COVID-19 losses. The accident year combined ratio, as adjusted, was 93.3, an improvement of 2.6 points from prior year quarter and comprised of a 60.7 accident year loss ratio, as adjusted and an expense ratio of 32.6.

Commercial Lines continued to show strong improvement due to premium rate increases and underwriting and reinsurance actions taken to improve business mix and loss performance. The accident year combined ratio, as adjusted, for North America Commercial Lines improved 6.3 points to 93.1 and for International Commercial Lines improved 4.1 points to 89.9.

The North America Personal Insurance accident year combined ratio, as adjusted, which increased 23.1 points to 118.6 compared to the prior year quarter, was impacted by business mix driven by a series of quota share reinsurance agreements placed in the second quarter 2020, including participation by our recently formed Syndicate 2019, a Lloyd’s Syndicate managed by Talbot, to reinsure risks related to AIG’s Private Client Group, and also reflects the impact of COVID-19 on the Travel business.

On October 26, 2020, AIG announced its intention to separate its Life and Retirement business from AIG. No decisions have yet been made regarding the structure of the proposed separation.