American International Group, Inc. (AIG) has reported a 3.3% deterioration in its combined ratio for the second quarter of 2016, from 98.8% in Q2 2015 to 102.1% in the most recent quarter, reflecting underwriting loss driven by higher catastrophe losses, among other factors.
AIG reported its financial results on Tuesday. Property casualty pre-tax operating income declined to US$791 million from US$1.192 billion in Q2 2015, “primarily reflecting the strong level of alternative investment income in the second quarter of 2015, as well as an underwriting loss in the current quarter driven by the effect of net loss reserve discount and higher catastrophe losses.” The higher loss ratio was partially offset by a lower expense ratio, AIG added in a statement.
The current quarter loss ratio included a net loss reserve discount charge of US$191 million compared to a net loss reserve discount benefit of US$270 million in the prior-year quarter. In addition, catastrophe losses were US$353 million, up from US$209 million in the prior-year quarter. Pre-tax operating income benefitted from an improvement in accident year losses and lower net adverse prior year loss reserve development.
Net written premiums decreased 21% in the second quarter ending June 30, from US$5.583 billion in Q2 2015 to US$4.424 billion in the most recent quarter. AIG reported that the decrease was “primarily due to the continued execution of our strategy to enhance risk selection in our Casualty and Property product portfolios, the non-renewal of certain underperforming classes of business, the increased use of reinsurance, and adherence to our underwriting discipline in competitive market conditions.” Net premiums earned also decreased from US$5.102 billion in the second quarter of 2015 to US$4,649 in Q2 2016.
Overall, the company reported net income of US$1.9 billion for the most recent quarter, compared to US$1.8 billion in Q2 2015. After-tax operating income was US$1.1 billion for the second quarter of 2016, compared to US$1.9 billion in the prior-year quarter.
By segment, Personal Insurance pre-tax operating income grew to US$179 million from US$70 million, reflecting improved underwriting results, AIG reported. The combined ratio also dropped 4 points, from 99.7% in Q2 2015 to 95.7% in the most recent quarter. “The lower combined ratio was driven by an improvement in the expense ratio, partially offset by an increase in the loss ratio,” AIG said, noting that the loss ratio was up 3 points to 55.7% in the most recent quarter. “The increase in the loss ratio reflected higher catastrophe losses, partially offset by increased net favourable prior year loss reserve development. The increase in the accident year loss ratio, as adjusted, was primarily driven by a single large loss event impacting the personal property business in the U.S.”
Personal Insurance net premiums written were broadly flat, from US$2.930 billion in Q2 2015 to US$2.922 billion in Q2 2016. Excluding the effects of foreign exchange, net premiums written decreased slightly due to a decline in automobile and personal property, partially offset by an increase in warranty service programs.
Other highlights include:
- Institutional Markets pre-tax operating income declined to US$110 million from US$151 million in Q2 2015, primarily due to lower net investment income, reflecting lower income on alternative investments;
- Retirement pre-tax operating income declined to US$741 million from US$804 million, primarily due to lower net investment income on alternative investments, partially offset by a decrease in employee-related expenses. Retirement premiums grew from US$44 million to US$52 million, primarily due to higher immediate annuity premiums in the Fixed Annuities product line;
- Life pre-tax operating income increased to US$184 million from US$149 million, primarily due to more favourable mortality experience and lower domestic employee-related expenses, partially offset by lower net investment income on alternative investments;
- Corporate and Other reported a pre-tax operating loss of US$544 million compared to pre-tax operating income of $372 million in the prior-year quarter, primarily due to lower earnings on Legacy investments at AIG Parent, for which the fair value option was elected, as well as the absence of equity earnings from shares in AerCap Holdings N.V., which was divested in 2015. Additionally, a net loss reserve discount charge associated with run-off insurance lines was recorded in the current quarter compared to a net loss reserve discount benefit in the prior-year quarter; and
- On Aug. 2, the board of directors authorized the repurchase of additional shares of AIG Common Stock with an aggregate purchase price of up to US$3 billion, which increased AIG’s remaining share repurchase authorization on such date to approximately US$4 billion.