Reinsurance News

AIG benefits from favourable reserve development & investments in Q4

13th February 2020 - Author: Luke Gallin

American International Group, Inc. (AIG) has announced significantly improved net income of USD 922 million for the fourth-quarter of 2019, driven by the performance of its General Insurance underwriting, reinsurance actions, favourable prior year development, lower cat losses, and higher investment income.

AIG LogoQ4 net income of USD 922 million is a huge improvement on the net loss of USD 622 million AIG recorded in the fourth-quarter of 2018.

For the full year 2019, AIG’s net income reached USD 3.3 billion, which is up meaningfully on the full year net loss of USD 6 million recorded by the insurer and reinsurer in 2018.

The company states that the improvement is mostly a result of the favourable impact of General Insurance underwriting, which returned to profit in 2019 (USD 12 million); reinsurance actions the firm has taken in recent times; favourable prior year loss reserve development of USD 153 million versus unfavourable development of USD 365 million in 2018; a total catastrophe loss reduction of USD 385 million; and a huge increase of USD 833 million in net investment income.

Looking at General Insurance, and AIG reveals that the segment recorded pre-tax income of USD 778 million, which was comprised of USD 12 million of underwriting income, and net investment income of USD 766 million. Cat losses in the segment totalled USD 411 million, with USD 233 million of this coming from Typhoon Hagibis, and USD 146 million from the California wildfires and Texas tornadoes.

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For the fourth-quarter of 2019, the segment recorded a combined ratio of 99.8%.

While the unit returned to profitability in 2019, it’s worth noting that absent favourable prior year development and the huge investment return, earnings in the division would have come in significantly lower.

Gross premiums written in General Insurance fell by 5% in the quarter to USD 7.3 billion, while net premiums written fell by 9% to USD 5.8 billion.

The segment’s loss ratio declined from 80.1% in Q4 2018 to 65.6% in Q4 2019, while the expense ratio remained relatively unchanged at 34.2%.

Overall, AIG’s net investment income for the fourth-quarter reached a huge USD 3.6 billion, which is up by a significant 30% on the prior year quarter.

Turning to Life and Retirement, and Q4 2019 pre-tax income rose by 35% to USD 839 million, while the segment’s adjusted ROCE for the period was 13%.

AIG has reported a pre-tax loss of USD 586 million for the fourth-quarter of 2019 within its other operations, which is an increase on the loss of USD 420 million posted in the prior year quarter.

Commenting on the firm’s Q4 and full year 2019 results, President and Chief Executive Officer (CEO), Brian Duperreault, said: “Our financial results for the fourth quarter and for full year 2019 reflect the significant progress we made over the course of 2019 to position AIG for long-term, sustainable and profitable growth. For the full year 2019, after- tax income attributable to common shareholders was $4.1 billion, or $4.59 per diluted share, and Adjusted ROCE was 8.3%. The improvement in our financial performance over the course of last year was broad-based, with contributions from all of our segments, but most notable was the return to underwriting profitability in General Insurance.

“The full year combined ratio was 99.6% and the accident year combined ratio, as adjusted, was 96.0%. Life & Retirement also delivered solid results in the face of continued headwinds from low interest rates and tightening credit spreads. Finally, we were pleased to announce that we reached an agreement to sell a majority stake in Fortitude Re, our legacy insurance business, which is scheduled to close mid-year, subject to regulatory approvals.

“As we look to 2020, we will continue to be laser focused on executing on our strategy to position AIG as both a leading insurance franchise and a top-performing company and we remain committed to achieving a 10% Adjusted ROCE by the end of 2021.

“In addition to continued work as part of the turnaround of General Insurance, AIG 200 will be a top priority. AIG 200 is our multi-year, enterprise-wide transformation program focused on the long-term strategic positioning of AIG and designed to achieve operational excellence. I remain confident we are on the right path at AIG and am very proud of what our colleagues accomplished since I joined the company in 2017. We entered 2020 with great momentum and excitement about what the future holds for AIG.”

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