AIG brings down combined ratio and returns to profit
US insurance giant AIG Group reduced its combined ratio from previous years’ ruinous levels, helped by lower catastrophe losses, and its reinsurance strategy.
For the third quarter of 2019, General Insurance posted a combined ratio of 103.7 and an accident year combined ratio, as adjusted, of 95.9, improved compared with 124.4 and 99.4, respectively, in the prior-year quarter, driven by lower catastrophe losses, continued underwriting actions, reinsurance and expense discipline. Two years ago, the combined ratio was even higher, at 157.1.
The company reported net income of $648 million, which compared with a loss of $1.26 billion in the third quarter of 2018.
Brian Duperreault, AIG’s president and chief executive, said: “Our results this quarter reflect the significant, ongoing work across the company to lay a foundation for long-term, sustainable and profitable growth. Results are in line with our expectations, particularly in General Insurance, which demonstrated a significant improvement over the prior-year quarter driven by our focus on underwriting excellence, expense discipline and enhanced reinsurance strategy.
He added: “…As we approach 2020, we remain confident we will deliver underwriting profitability for the full year 2019 and deliver double-digit ROCE by the end of 2021. We still have much work ahead of us, but we are well on our way to positioning AIG as a leading global insurance company.”
Gross Written Premiums fell 1 percent to $8.58 billion.
The underwriting loss in the general insurance division was driven by net pre-tax catastrophe losses of $497 million, including $254 million for Typhoon Faxai and $135 million for Hurricane Dorian. A year earlier, losses were worse, due to events such as Typhoons Jebi and Trami, as well as Hurricane Florence.
AIG’s net income was boosted by a strong result from its investment division. Total consolidated net investment income was $3.4 billion in the third quarter of 2019, essentially flat to the prior-year quarter, reflecting higher interest and dividends and other investment income partially offset by lower alternative investment returns.
Last year, AIG bought reinsurer Validus Holdings Ltd for $5.6 billion in cash.
Duperreault, told a conference call: “As I've said in the past, as part of our strategy to contain volatility and manage CAT within our risk appetite, we enhanced our reinsurance coverage in Japan to reduce net retention and protect against tail events. When we restructured our worldwide CAT program for 2019, this included moving to a single-occurrence tower for Japan with a model expected attaching point of the one in seven-year event. This dedicated occurrence protection exhausted the model 1 in 69-year event, and we have additional protection from our global CAT cover that provides protection in excess of the one in 500-year event. Also, additionally, we also purchased international annual aggregate protection, which attaches at one in 10-year event for losses outside of North America, with approximately 80% of the model expected losses coming from Japan.
He added: “Based on our current estimation of year-to-date CAT losses in international and excluding Validus Re, our net loss before reinstatement premium arising from this event is estimated at no more than approximately $75 million.
He further added : “Peter (Zaffino, chief executive officer, general insurance and global chief operating officer) and the team at GI are executing with focused urgency that is impressive, and the marketplace has taken notice. We're beginning to see these significant efforts pay off in our results with the third-quarter performance in GI yielding remarkable improvement over prior years. I am particularly pleased that the GI reinsurance strategy played out as designed, dramatically reducing volatility in CAT season and preserving capital. We've been leading the market with our professional approach to judiciously deploying capacity, appropriately addressing loss cost inflation and continued underwriting discipline on our pricing models.”
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