Canadian Underwriter

AIG reports increase in loss reserves for Q2 due to Hurricane Sandy

August 2, 2013   by Canadian Underwriter

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American International Group (AIG) Inc. reported Thursday its financial results for the quarter ending June 30, reporting a slight increase in the combined ratio for its property and casualty business and a 1.8% year-over-year increase in P&C net premiums written.

AIG reports increase loss reserves

During the second quarter of 2013, New York City-based AIG reported a combined ratio, in P&C, of 102.6, up 0.2 points from the second quarter of 2012.

“Second quarter 2013 results included catastrophe losses of $316 million and adverse net prior year development of $154 million (net of premium adjustments), primarily due to a Storm Sandy loss reserve increase of $142 million,” AIG stated in a filing with the U.S. Securities and Exchange Commission. All figures are in U.S. currency.

“These additional Storm Sandy losses related to a small number of existing large and complex commercial claims.”

Hurricane Sandy was downgraded to a post tropical storm when it made landfall in New Jersey Oct. 29, 2012. In May 2013, Aon Benfield’s Impact Forecasting unit estimated the storm caused total insured losses of $30 billion.

In 2012, AIG attributed $2.013 billion in cat losses to Storm Sandy and it reported after-tax loss for the storm of $1.3 billion in the fourth quarter of 2012.

For the three months ending June 30, 2013, AIG reported net premiums written, in P&C, of $9.263 billion, up 1.8% year-over-year from $9.095 billion in the same period in 2012. Net premiums earned in P&C were down 5.4% year over year, from $8.82 billion in Q2 2012 to $8.347 billion in Q2 2013. AIG reported revenues in life and benefits of $4.328 billion in the latest quarter.

The Q2 P&C loss ratio increased 0.9 points year-over-year, from 68 in 2012 to 68.9 in 2013. Claims and claims adjustment expenses dropped 6% year over year, from $6.079 billion in Q2 2012 to $5.679 billion in Q2 2013.

For the entire company, net income attributable to AIG (which is the total net income minus net income from continuing operations attributable to non-controlling interests) was $2.731 billion in Q2 2013, up 17.1% from $2.332 billion during the same period in 2012.

“Our profits this quarter illustrate the success of our continued focus on our core insurance operations and ongoing commitment to capital management,” AIG president and CEO Robert Benmosche stated in a press release.

“In particular, we witnessed strength this quarter in underwriting improvements and the successful continuation of the shift in our business mix in AIG Property Casualty, disciplined spread management in AIG Life and Retirement, strong performance in our investments, and continued improvement in our mortgage insurance business where about half of net premiums earned in the second quarter of this year were from business written post-2008.”

In September 2008, mortgage-related investment losses and collateral calls on credit default swaps brought AIG “to the brink of collapse,” according to a backgrounder published on the Federal Reserve Bank of New York website.

During the financial crisis at the time, the federal government bailed AIG out, due in part to the fact that AIG was the largest issuer of life and health insurance and fixed annuities.

The Fed’s assistance was terminated in 2011, and then in 2012, AIG announced that the total authorized U.S. government assistance to the firm, of $182 billion, had been repaid. By the end of the year, the U.S. treasury department no longer owned a majority of AIG’s common shares. AIG provided P&C under the Chartis brand until November of 2012, when it reverted to the AIG brand.

Last month, AIG also announced it was retiring the Chartis brand in Canada. The P&C business now operates in Canada as AIG Insurance Company of Canada. Also last month the U.S. Financial Stability Oversight Council (FSOC)  made a final determination that AIG “should be supervised by the Board of Governors of the Federal Reserve System as a systemically important financial institution,” a ruling AIG did not contest.

On Thursday, AIG reported its second-quarter net investment income increased 13.6% year-over-year, from $1.153 billion in 2012 to $1.310 in 2013.

AIG says its second-quarter net premiums written increased 4% year-to-year when foreign exchange, and “the impact of a change in the timing of recognizing the excess of loss ceded premiums written,” are excluded.

Excluding the impact of those two items, commercial insurance net premiums written increased 3.6% year over year and consumer insurance net premiums written increased 4.7% year over year, AIG added.

“Consumer insurance continued to focus on growing higher value lines of business, while expanding direct marketing as part of its multi-channel distribution strategy,” AIG stated.

“Commercial Insurance reported second quarter 2013 operating income of $535 million and a combined ratio of 101.7, compared to operating income of $745 million and a combined ratio of 99.3 in the second quarter of 2012.”

For the first six months of 2013, AIG’s P&C loss ratio was 65.6, down 2.9 points from 68.5 in the same period of 2012. Combined ratio for the first six months of 2013 was 100.0, down 2.3 points from 102.3 in the first half of last year.

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