P/C cat losses contribute to Q1 profit decline at AIG
A mixture of higher catastrophe losses, unfavourable loss reserve development, and a decrease in net investment income in its property/casualty unit contributed to a slip in profits at American International Group (AIG) in the first quarter of 2014.
The company made a $1.6 billion net profit in the first quarter of 2014, a 27 percent decline on the same period the year before when its profits were $2.2 billion. Its pre-tax operating income fell to $2.7 billion compared with almost $3 billion a year earlier and its after-tax operating income was $1.8 billion in the first quarter compared with $2 billion for the prior-year quarter.
Much of the decline occurred in its property/casualty book, which was hit by higher losses, unfavourable loss reserve development and a decrease in net investment income. Catastrophe losses in the unit were $262 million, compared to $41 million in the first quarter of 2013. Including related premium adjustments, net adverse development was $162 million, compared with net favorable development of $52 million for the first quarter of 2013.
This adverse development was partially offset by a reserve discount benefit of $105 million in the first quarter of 2014 related to the previously disclosed changes in US pooling arrangements.
Severe losses for the first quarter of 2014 were $186 million compared to $60 million in the first quarter of 2013. The unit’s combined ratio for the quarter was 101.2 percent, a 3.9 point increase from the prior-year quarter.
“I am very pleased with AIG’s solid operating profits this quarter,” said Robert Benmosche, AIG president and chief executive. “The earnings power of our business coupled with our customer strategy reinforce the strength of our foundation throughout our core insurance operations. I am encouraged by the positive momentum we’ve generated around the world, which has enabled us to become closer to, and better serve, our customers.
“These results reflect strong operating income across our insurance operations, as well as execution of our capital management strategy. We remain diligently focused on increasing operational efficiency, managing our expenses, and investing in technology; we continue to look at ways to simplify and make our organisation more efficient to ensure that we are creating a company that will thrive well into the future.
“As we look to build upon the important work we have already done, we must continue to develop and grow our company so that it is more sustainable. We have made great strides in this transformation and in showing what we are capable of as a company, but we still have work to do. Above all else, we must operate and make sound business decisions as a company whose number one priority is to understand and provide for its customers.
“We also remain fully engaged with all of our regulators, including the Federal Reserve, and will continue to work closely with them to achieve our shared goal of making AIG a better, stronger company able to withstand whatever the future brings.”
