AIG pre-tax income drops by 15% in 2020

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AIG’s general insurance business saw adjusted pre-tax income fall to $1.9bn in 2020 from $3.53bn, brecorded in 2019 despite a rebound in Q4 that saw 15 percent increases for commercial business, as $1.1bn of Covid-19 losses hit.

The pandemic losses and higher nat cat claims saw general insurance’s 2020 combined ratio deteriorate to 104.3 percent from 99.6 percent in 2019.

But adjusted pre-tax income was up 4 percent in Q4 to $809m as investment income rose 28 percent to $980m. The was despite the fact the unit fell to a $171m underwriting loss in the quarter, compared to profit of $12m in the prior-year period.

The quarterly loss included $545m of cat claims, compared with $411m in Q4 2019. Some $367m was primarily related to Hurricanes Sally, Zeta, Laura and Delta. The remaining $178m consisted of Covid-19 losses, with travel, contingency and Validus Re business taking the brunt.

General insurance’s combined ratio was 102.8 percent for the quarter, deteriorating three percentage points from the same period in 2019. The combined ratio for international commercial business, however, improved by 4.8 percentage points to 92.1percent. The combined ratio for North American commercial lines worsened by 3.6 points to 112.4 percent

General insurance’s net premiums written fell 5 percent in the fourth quarter to $5.6bn. They were flat in international at $3.2bn, and down 11 percent in North America, predominantly due to a 55 percent fall in personal lines.

But net premiums were up 7 percent in international commercial lines to $1.66bn and 10 percent in North America to $1.99bn. AIG said this reflected “strong rate momentum” and improving retention across most lines.

AIG Group posted a net loss of $60m in the fourth quarter from a profit of $922m in Q4 2019, mainly due to a $1.2bn derivative loss. The quarter’s adjusted income was $827m, down from $923m a year ago.

For full year, AIG fell to a $5.97bn net loss from a profit of $3.23bn in 2019. The company said this was largely due to the sale of Fortitude last June.

However, its adjusted income still almost halved to $2.2bn from $4.08bn in 2019. The company said this was primarily due to the result in general insurance, which was hit by higher cat and pandemic losses, as well as an increased pre-tax loss from other operations, including the sale of Fortitude Re.

Peter Zaffino, AIG’s president and chief operating officer, said the insurer achieved 15% commercial rate increases in the fourth quarter of last year, with improvement across all lines expect workers compensation, according to results service Seeking Alpha

International commercial rates were up 14 percent in Q4 and accelerated in the second half of last year, explained Mr Zaffino, who will be taking over as AIG’s CEO from Brian Duperreault on 1 March.

North America commercial rate increases were 21 percent in the fourth quarter, compared to 14 percent in the prior-year period, explained Mr Zaffino. He said this improvement was driven by excess casualty that saw rates increase of 45 percent and financial lines that were up over 25 percent, led by a 35 percent rise in D&O. North American retail property and Lexington wholesale property both saw rates increase by about 30 percent, and Lexington casualty business was up 25 percent.

Mr Zaffino expects the commercial market hardening to continue in 2021.

“We expect to see these rate increases be above loss costs. We expect that these rate increases will be balanced across our global portfolio and across multiple lines of business,” he said.

He added that AIG is going to be “very disciplined” about where it deploys its capacity for P&C risks and ensure it gets the “right price for the exposure”.

AIG’s CFO Mark Lyons agreed that there are no signs of price increases decelerating. He added that price rises started a little bit later for international business, so its market trajectory is slightly different to North America.

Mr Zaffino said AIG’s  fourth quarter results provided “further evidence” that each of its businesses remain “financially strong, market leaders, and well-positioned for profitable growth over the long-term in their respective markets”.

Outgoing AIG CEO Brian Duperreault said the fourth-quarter and full-year 2020 operating results demonstrate “continued progress” to position AIG for “long-term, sustainable and profitable growth”.

“We are effectively managing the impacts of Covid-19 and natural catastrophes, and remain well capitalised in this environment of unprecedented uncertainty,” he said.

Mr Duperreault said general insurance business “continues to improve”, with a 1.9-point uptick in the adjusted accident-year combined ratio compared to 2019; and a 5.6-point improvement in the adjusted accident-year combined ratio compared to 2018.

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