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AIG’s GI unit reports Q2 underwriting loss as cats hit $674mn

4th August 2020 - Author: Luke Gallin

American International Group, Inc. (AIG) has reported that its General Insurance (GI) segment fell to an underwriting loss of $343 million in the second-quarter of 2020, which includes €674 million of catastrophe losses, net of reinsurance.

AIG LogoThe elevated level of overall cat losses in Q2 compares with €174 million of cats, net of reinsurance, in the prior year quarter, and reflects $458 million of estimated COVID-19 losses, $126 million of losses related to civil unrest in the U.S., and $90 million of natural catastrophe losses.

Overall, the GI segment of AIG recorded a combined ratio of 106% in Q2 2020, comprised of a 72.6% loss ratio and a 33.4% expense ratio. In comparison, AIG’s GI unit posted a combined ratio of 97.8% in Q2 2019, comprised of a 63% loss ratio and a 34.8% expense ratio.

Despite the underwriting loss, the global re/insurer says that impacts from the ongoing COVID-19 pandemic remain manageable. The $458 million of COVID-19 losses announced for Q2 follows a $272 million impact from the pandemic in Q1 2020, taking the firm’s COVID-19 hit to an estimated $730 million in H1 2020.

Within GI in Q2 2020, AIG has reported favourable net prior year reserve development, net of reinsurance, of $74 million, primarily driven by the $53 million amortization from its Adverse Development Cover (ADC).

GI gross premiums written (GPW) fell by 2% year-on-year in the quarter to $8.474 billion, as net premiums declined by 16% to more than $5.5 billion.

Brian Duperreault, the company’s Chief Executive Officer (CEO), commented: “We are effectively navigating the current complex environment due to the strong foundation we built over the last three years. While unprecedented and on-going, COVID-19 remains an earnings, not a capital, event for AIG. We also increased our financial flexibility ending the second quarter with over $10 billion in liquidity.

“Our core businesses performed well in the second quarter. In General Insurance, the underlying underwriting profitability improvement was driven by our focus on portfolio remediation and expense discipline. Life and Retirement benefited from its diversification and agility, and continues to meet client needs despite an uncertain economic environment.”

Turning to Life and Retirement, and the firm has reported second-quarter adjusted pre-tax income of $881 million, which is down on the $1 billion posted in Q2 2019 as a result of private equity losses, spread compression and higher mortality owing to COVID-19.

Other operations fell to an adjusted pre-tax loss of $510 million in Q2 2020 against a loss of $471 million in Q2 2019, driven mostly by lower investment income on consolidated investments and increased interest expenses.

Total consolidated net investment income reached $3.4 billion for AIG in Q2 2020, compared to $3.7 billion in Q2 2019.

Overall, AIG has reported a net loss of $7.9 billion for the second-quarter of 2020, against net income of $1.1 billion in Q2 2019.

This loss is mostly a result of a $6.7 billion after-tax loss from the sale and deconsolidation of Fortitude, and $1.8 billion of after-tax net realised capital losses related to mark-to-market losses from variable annuity and interest rate hedges including the impact of the firm’s non-economic non-performance risk adjustment, per GAAP, on the fair value of its associated liabilities, explains AIG.

According to AIG, the sale of Fortitude led to an after-tax reduction to total shareholders’ equity of $4.3 billion.

On June 3rd, 2020 it was revealed that the Carlyle Group and T&D Holdings had completed their acquisition of a 76.6% interest in Fortitude Group Holdings, whose group companies include Fortitude Re from AIG.

“We also executed two important transactions in the second quarter that significantly enhanced our risk profile and helped to position our core businesses for growth. The sale of our majority stake in Fortitude Holdings de-risks our balance sheet and reduces our exposure to long-tail runoff liabilities and interest rate risk. Our Personal Insurance high net worth portfolio benefited from the formation of Syndicate 2019 and new quota share reinsurance agreements, which will enable us to unlock the strategic value and growth opportunities of this business through a new, innovative capital model,” said Duperreault.

AIG announced in early May 2020 that its landmark Lloyd’s Syndicate had received approval to commence underwriting, with the operation launched to exclusively reinsure risks from AIG’s Private Client Group (PCG).

“I am proud of the many ways we are managing through this challenging period in time. Our colleagues continue to show strength and resiliency as we remain focused on supporting our clients, each other and our communities. I remain confident that AIG is well-positioned for the future as we make progress toward becoming a top-performing company and leading insurance franchise,” added Duperreault.

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