American International Group Inc. reported Wednesday its net income was $1.13 billion during the three months ending June 30 and its Q2 combined ratio in personal insurance improved 5.9 points from last year, but the combined ratio in commercial insurance deteriorated 4.4 points to 102.7% while premiums in commercial insurance dropped 15% from the second quarter of 2016.
In commercial insurance, New York City-based AIG recorded net premiums written of $3.83 billion in the second quarter of this year, down 15% from $4.5 billion in the same period of 2016. All figures are in United States dollars.
The decrease was “9% on a constant dollar basis excluding divestitures,” AIG said in a release. “The decrease was related to continued execution on our strategic portfolio actions throughout the second quarter of 2017 and challenging market conditions.”
Net income dropped 41%, from $1.91 billion in Q2 2016 to $1.13 billion in the latest quarter.
“While market conditions remain challenging, we are committed to disciplined underwriting and are focused on investing in profitable growth,” stated AIG CEO Brian Duperreault in a release.
Duperreault, who assumed his role May 14, replaced Peter Hancock, whose resignation was announced in March. Hancock had taken over as AIG CEO in December, 2014 – four years after joining the firm.
Hancock was appointed CEO of AIG property casualty in March 2011, after being executive vice president of finance, risk and investments.
Hancock’s predecessor as AIG CEO was Robert Benmosche, a former MetLife CEO who joined AIG in 2009, after the U.S. government took a majority interest in AIG, which it has since sold. Benmosche died Feb. 27, 2015 of lung cancer.
After the collapse of the U.S. subprime housing market, in 2008, AIG encountered losses on its mortgage-related investments. At the time, AIG was the largest issuer of fixed annuities in the U.S. and was bailed out by the Federal Reserve Bank of New York.
On the property & casualty side of the business, AIG reported $3.386 billion in prior year development in commercial P&C, in the United States and Canada, in 2015.
AIG now has an adverse development reinsurance agreement – announced in January, 2017 – with Berkshire Hathaway Inc.’s National Indemnity Company (NICO) subsidiary.
NICO has agreed to reinsure 80% of losses on certain reserves for accident years 2015 and prior.
In the three months ending June 30, 2017, AIG reported its pre-tax operating income in commercial was $716 million, down 24% from $941 million in Q2 2016. That included $21 million of adverse prior year reserve development, net of reinsurance in liability and financial Lines and $41 million of unfavourable prior year reserve development, net of reinsurance in property and special risks.
“Prior year reserve development is net of the losses ceded to the NICO adverse development coverage (ADC) reinsurance agreement and the amortization of the deferred gain of the ADC cover,” AIG said Aug. 2, 2017.
The combined ratio in commercial insurance deteriorated 4.4 points from 98.3% in Q2 2016 to 102.7% in the latest quarter. The Q2 combined ratio in liability and financial lines increased 6.6 points from 95.8% in 2016 to 102.4% this year, while in property and special risks that ratio was up 1.5 points, from 101.4% in Q2 2016 to 102.9% in the latest quarter.
Of the $3.83 billion in net premiums written in commercial in Q2 2017, $2.085 billion was in liability and financial lines while $1.74 billion was in property and special risks.
The combined ratio in personal insurance was down 5.9 points, from 97% in Q2 2016 to 91.1% in the most recent quarter.
“Favorable loss experience and lower catastrophe losses, an improved expense ratio that reflected strategic and portfolio actions, together with growth in net investment income from alternative investments were partially offset by a lower earned premium base and lower net favorable prior year loss reserve development,” AIG said.
Q2 net premiums written in personal insurance were down 3%, from $2.924 billion in 2016 to $2.846 billion this year.
Of $5.98 billion in operating revenue in consumer insurance in the second quarter of this year, $1.38 billion was in individual retirement, $696 million was in group retirement and $1.03 billion was in life insurance.
In October, 2016, AIG announced the sale of its commercial and consumer insurance operations in Argentina, Chile, Colombia, Uruguay, Venezuela and Turkey. The buyer is Toronto-based Fairfax Financial Holdings Ltd., which also owns Allied World Assurance Company, Northbridge Insurance, OdysseyRe, London-based Brit PLC and Crum & Forster, among others.
A month earlier, AIG announced that the Canada Pension Plan Investment Board agreed to buy AIG’s interest in Ascot Underwriting Holdings Ltd. plus its syndicate-funding subsidiary Ascot Corporate Name Ltd.