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Cat losses of $790mn push AIG’s GI unit to Q3 underwriting loss

6th November 2020 - Author: Luke Gallin

American International Group, Inc. (AIG) has announced that its General Insurance (GI) unit reported $790 million of catastrophe losses in the third-quarter of 2020, taking the segment’s combined ratio to 107.2%.

AIG LogoThe $790 million of pre-tax cats, net of reinsurance, impacted the GI combined ratio by 13.5 percentage points in the quarter as the ratio deteriorated to 107.2% from the 103.7% reported for Q3 2019.

Within GI, gross premiums written fell by 4% to $8.3 billion in Q3 2020, while net premiums written declined by 11% to $5.9 billion.

Overall, GI reported adjusted pre-tax income of $416 million for Q3 2020, which includes an underwriting loss of $423 million and net investment income of $839 million.

Included within the underwriting loss is $605 million of non-COVID-19 losses primarily from windstorms and tropical cyclones in North America and Japan, as well as wildfires on the U.S. West Coast, and $185 million of losses related to the pandemic, mostly related to travel, contingency, and Validus Re. In comparison, AIG recorded $497 million of catastrophe losses, net of reinsurance, in the prior year quarter.

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The GI underwriting result was also impacted by unfavourable net prior year reserve development, net of reinsurance, of $13 million, and also reflects $53 million of favorable amortization from the Adverse Development Cover (ADC).

In the firm’s Life and Retirement business, reported adjusted pre-tax income reached $975 million, which represents a significant growth from the $646 million reported for Q3 2019. AIG explains that the increase here reflects higher private equity returns and strong equity market performance which resulted in lower deferred acquisition costs (DAC) and Sales Inducement (SI) amortization and lower Variable Annuity reserves; favorable short-term impacts from lower interest rates and tighter credit spreads which resulted in higher call and tender income; and lower GOE.

Across the business, AIG has reported net income of $281 million for the third-quarter of 2020, compared with $648 million for the same period last year.

Brian Duperreault, AIG’s Chief Executive Officer (CEO), commented: “We are pleased to report AIG’s solid third quarter results as we embark on an important phase of our journey to become a top performing company. In General Insurance, the accident year combined ratio, as adjusted, improved for the ninth consecutive quarter, and the high frequency of natural catastrophes and COVID-19 had a limited impact on financial results. Life and Retirement’s results continue to demonstrate that it is a market-leading franchise, with a strong improvement in adjusted pre-tax income from last year.

“Our recent leadership transition and corporate structure announcements marked an important milestone for AIG made possible by the significant foundational work our colleagues have successfully executed on over the last three years.”

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