AIG net income up to $9 billion in 2013 after lower cat losses

American International Group Inc. released Thursday its financial results for the quarter ending Dec. 31, reporting a 23.8-point drop in its property and casualty combined ratio, a 16.6% increase in fourth-quarter investment income and $272 million in unfavourable prior year loss reserve development in Q4.

In its property and casualty operations, AIG reported net premiums written of $34.39 billion and a combined ratio of 101.3% in 2013, compared to net premiums written of $34.44 billion and a combined ratio of 125.1% in 2012. All figures are in U.S. dollars.

The loss ratio in 2013 was 66.7%, down from 73.9% in 2012.

“Pre-tax catastrophe losses were $208 million in the fourth quarter of 2013, compared to $2.0 billion in the fourth quarter of 2012, which largely consisted of Storm Sandy losses,” AIG stated in a press release.

Hurricane Sandy, which caused tens of billions in economic damages, was downgraded to post-tropical storm status when it made landfall in New Jersey Oct. 29, 2012.

AIG’s net loss attributable to AIG was $3.96 billion and its underwriting loss was $2.16 billion in the fourth quarter of 2012. AIG reported Thursday its net income attributable to AIG was $1.98 billion in the three months ending Dec. 31, 2013, while its underwriting loss for the latest quarter was $330 million.

For the full year, net income attributable to AIG was $9.09 billion in 2013, up from $3.44 billion in 2012.

Also for the full year, AIG recorded an unfavourable prior year loss reserve development of $527 million in 2013, $272 million of which was recorded in the fourth quarter. In the most recent quarter, $248 million in unfavourable prior year loss reserve development was from run-off business, “reflecting changes in case reserves due to new developments such as the discovery of additional contamination in certain sites, legislative changes, court rulings, expansion of plaintiff damages and increased cost of remediation technologies,” AIG stated.

“Net prior-year adverse development was $266 million, primarily attributable to runoff pollution remediation coverages and pre-2004 environmental business compared to $116 million for the fourth quarter of 2012,” AIG stated.

“This adverse development was more than offset by an increased reserve discount benefit of $325 million arising from a charge of $322 million in Commercial Insurance from a lower discount rate on primary workers’ compensation reserves, as well as a benefit of $647 million in AIG Property Casualty’s Other category, primarily from the use of payout patterns specific to excess workers’ compensation reserves.”

For the full year, $294 million in unfavourable prior year loss reserve development was in casualty commercial and $327 million was in other runoff.

AIG’s underwriting loss for the full year was $455 million in 2013, down from $2.98 billion in 2012.

Fourth-quarter investment income increased 16.7% year over year, from $1.217 billion in 2012 to $1.42 billion last year.

Net premiums written were $8.03 billion in the most recent quarter, up from $7.81 billion in the fourth quarter of 2012. Net premiums earned increased from $8.61 billion in Q4 2012 to $8.62 billion in Q4 2013. The Q4 combined ratio dropped 21.3 points year over year, from 125.1% in 2012 to 103.8% in 2013.

In P&C commercial, net written premiums written were $4.84 billion in Q4 2013, up from $4.41 billion in the same period in 2012. In P&C consumer, net premiums written dropped year over year, from about $3.4 billion in the fourth quarter of 2012 to $3.19 billion in the latest quarter.