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AIG’s GI segment falls to underwriting loss on $272m COVID-19 hit

5th May 2020 - Author: Luke Gallin

American International Group, Inc. (AIG) has reported an underwriting loss of $87 million within its General Insurance segment in Q1, which includes $272 million of estimated COVID-19 related losses.

AIG LogoDespite the firm’s General Insurance unit falling to an underwriting loss in the quarter, net investment income of $588 million more than offset the impact, resulting in Q1 risk-adjusted pre-tax income of $501 million.

Excluding the $272 million COVID-19 hit, AIG says that its General Insurance unit would have recorded an underwriting profit in the period.

The segment also recorded favourable net prior year loss reserve development, net of reinsurance, of $60 million in the quarter. Catastrophe losses, net of reinsurance, amounted to $419 million, of which $272 million relates to losses from the COVID-19 pandemic.

AIG states that the estimated COVID-19 losses recorded in the quarter related to travel, contingency, commercial property, trade credit, workers’ comp, and Validus Re.

Overall, AIG’s General Insurance segment has reported a combined ratio of 101.5% in Q1 2020, including 6.9 percentage points of catastrophes, of which 4.5 percentage points relates to COVID-19.

In Life and Retirement, AIG’s first-quarter adjusted pre-tax net income reached $574 million in Q1 2020, which is down on the $924 million posted a year earlier. AIG attributes the decline to unfavourable impacts from equity markets which drove higher variable annuity reserves and accelerated both deferred acquisition cost and sales inducement amortization.

Turning to investments, and the insurer and reinsurer’s net investment income reached $2.5 billion in Q1 2020, compared with $3.9 billion in Q1 2019. On an adjusted pre-tax basis, net investment income decreased by roughly $1 billion to $2.7 billion, primarily as a result of lower alternative investment income year-over-year, and other investment losses in Q1 2020, against other investment gains in Q1 2019.

In total, AIG’s net income attributable to common shareholders hit $1.7 billion in the first-quarter of 2020, which is up on the $654 million posted a year earlier. AIG states that this improvement was mostly driven by $3.5 billion of pre-tax net realised capital gains largely related to mark-to-market gains from variable annuity and interest rate hedges.

Adjusted after-tax net income attributable to AIG common shareholders was $99 million in the first-quarter of 2020, which is down significantly on the $1.4 billion recorded a year earlier. AIG says that this decline was mostly a result of lower net investment income driven by fading equity markets and losses on FVO bonds from widening spreads in credit markets, as well as the COVID-19 impacts.

Commenting on the firm’s results, Chief Executive Officer (CEO) Brian Duperreault, said: “In the face of COVID-19, an unprecedented global catastrophe, our colleagues have shown great resilience and remain focused on what we do best, which is helping our clients manage risk, especially in difficult times.

“It has been heartbreaking to watch this humanitarian crisis unfold over the last few months. At the same time, the courage, compassion and empathy that have emerged, particularly from first responders, health care providers and others on the front lines, has been heartwarming. AIG is committed to assisting with relief efforts across the globe and will be making an inaugural $5 million contribution to our recently reinstated AIG Foundation for this purpose.

“AIG was in a strong financial position before this crisis began and remains in a strong financial position today. While we believe COVID-19 will be the single largest CAT loss the industry has ever seen, the significant body of work our team has undertaken since late 2017 has served us well as we navigate through this evolving situation. AIG is well-positioned to emerge as a global insurer of choice with significant financial flexibility.

“In the first quarter of 2020, our core businesses delivered strong results building on the momentum we had coming into the year. In General Insurance, the adjusted accident year combined ratio continued to improve, and Life and Retirement delivered solid results despite unfavorable capital markets and continued low interest rates.

“The COVID-19 crisis has created significant uncertainty, and it will take time to understand its broader ramifications. In light of this, AIG is withdrawing previously issued guidance, including that relating to Adjusted Return on Common Equity. However, we do expect to see continued improvement in General Insurance, particularly in the adjusted combined ratio, and, in Life and Retirement, we do not believe that the impact of COVID-19 will result in a material reduction of our long-term return profile.

“While the new normal COVID-19 will create for each of us is still unknown, I am confident that AIG will continue to move forward on its journey to become a top performing company and leading insurance franchise.”

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