AIG's Duperreault optimistic about reaching underwriting profit in 2018

Despite AIG’s general insurance having reported an underwriting loss for the second quarter of 2018, group CEO Brian Duperreault remains optimistic that the company will be able to deliver an underwriting profit when exiting 2018.

AIG reported an underwriting loss for its general insurance operations in the second quarter of 2018 as the loss ratio deteriorated.

The unit posted an underwriting loss of $89 million for the second quarter of 2018 compared to an underwriting profit of $149 million in the same period a year ago.

The loss ratio deteriorated to 65.7 percent from 64 percent over the period, driven by a high frequency of severe losses that totalled $293 million (4.5 pts) which is more than double the long-term average, according to the company. The severe losses were largely attributable to policies incepted in 2017 and earlier.

“We expect to deliver an underwriting profit including AAL (average annual loss) and general insurance as we exit 2018,” Duperreault said during the insurer’s second quarter earnings call.

“We remain confident we will achieve this goal,” Duperreault added. “The restructuring charge we announced this morning reflects our focus on cost reductions in general insurance and at AIG headquarters, which will continue over the balance of the year and which we expect will contribute approximately two points of decline in the combined ratio.”

In the second quarter, AIG recorded pre-tax non-operating restructuring costs of $200 million as the company works on reducing operating expenses, improving efficiency and simplifying the organisation.

The general insurance segment recorded a combined ratio of 101.3 percent in the second quarter of 2018 after 97.7 percent in the same period a year ago.

General insurance CEO Peter Zaffino, said: “We continue to focus on achieving underwriting profitability on an exit run rate basis by the end of 2018.

“Our top priority is to improve the core performance of general insurance through risk selection, altering our mix of business, managing gross and net limits to reduce volatility and continuing to add high quality underwriters to our team,” Zaffino added.

As part of the plan chief underwriting officer Tom Bolt is implementing a new underwriting framework aiming to better position AIG in the market.

“We started to reduce gross and net limits in both property and casualty during the first half of the year and we are taking actions to improve financial performance in challenged areas of our business,” Zaffino noted.

AIG is reducing property underwriting limits from $2.5 billion globally to $1 billion in the US and $750 million internationally with the exception of fronted policies in a move aiming to lower exposures across the portfolio. “We are also in the process of revising our use of deductibles, reducing exposure to certain industries and putting a new team of seasoned underwriters in place,” Zaffino noted.

Zaffino expects that the revised underwriting and reinsurance strategies will result in a better net mix of business and an improved risk profile.

“Since last quarter, we expanded our European casualty excess of loss program to cover the entire international business and entered into a new US terrorism facility that reduced net exposures for our in-force commercial property policies,” Zaffino said.

“In addition, we're actively engaging with our reinsurance partners on opportunities for the second half of 2018,” he added.

“The second quarter restructuring charges illustrate our ongoing efforts to eliminate redundancies, streamline our operations, drive process improvement and instil accountability for expenses,” Zaffino stressed.

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