AIG President and Chief Operating Officer Peter Zaffino said that the insurer has seen accelerated rate improvements and other gains as clients react to the ongoing COVID-19 pandemic.
“We believe that COVID has resulted in a flight to quality and we are benefiting from this market dynamic,” Zaffino said during American International Group’s Q2 2020 earnings call on Aug. 4.
Zaffino credits those gains, in part to the work that CEO Brian Duperreault, himself and others at the insurer have pursued over the last three years to revamp its operations and return its property/casualty (General Insurance) business to the black [excluding COVID-19] after years in the red. Ongoing rate hikes have also helped.
“While new business slowed in the second quarter as everyone quickly moved to a remote working environment in the early, challenging days of COVID-19, the strong foundation we built allowed us to be responsive to stakeholders’ needs,” Zaffino said.
One example of this trend is in AIG’s global commercial portfolio, where Zaffino said the insurer saw both client retention and some revenue improvement.
“In addition, we are resetting terms and conditions in many lines such as property, and primary and excess casualty, and we are continuing to deploy limit with discipline, while pursuing growth in certain lines of business that will further strengthen our portfolio on a risk adjusted basis,” Zaffino said.
A Complicated Quarter
With that said, COVID-19 and other AIG corporate moves still made for a complicated second-quarter earnings report.
AIG booked nearly $8 billion in net losses, or negative $9.14 per common share in Q2, compared to $1.1 billion, or $1.24 per diluted common share in the 2019 second quarter. That was due in large, part, however, to a $6.7 billion after-tax loss from the sale and deconsolidation of Fortitude, and $1.8 billion of after-tax capital losses due to market losses from variable annuity and interest rate hedges. Without those factors, AIG said it would have produced $571 million in net income, but that’s still a drop from the year before with higher catastrophe losses and lower net investment income factored in.
AIG’s property/casualty business produced $674 million of pre-tax catastrophe losses in Q2, net of reinsurance, adding nearly 12 combined ratio points. This included $458 million in COVID-19 losses, which Zaffino said hit more business lines than in the first quarter, including travel, contingency, property, trade credit, marine, casualty, workers compensation, accident and health, financial lines and Validus Re. Total catastrophe losses also included $126 million of civil unrest related losses and $90 million of actual natural catastrophe-related losses. In all, this produced a 106 combined ratio for Q2, compared to a 97.8 combined ratio in Q2 2019.
Zaffino emphasized that without the catastrophe losses, AIG’s combined ratio for property/casualty would have been 94.9, 120 basis points better than the same year-ago quarter due to improved performance in Commercial lines and ongoing expense discipline.
Another benefit, according to Zaffino: AIG’s reinsurance program has helped protect from gross losses from COVID-19-impacted lines.
Also, AIG’s business interruption coverage continued to hold its own under difficult circumstances. Zaffino said that, as in Q1, most of AIG’s Q2 commercial business interruption policies in force continued to contain exclusions from losses related to viruses, except if the virus caused physical loss or damage that led to an interruption in business. The few commercial property policies that included infectious disease provisions are under strict underwriting guidelines, Zaffino said, “offering only small sublimits, with terms and conditions – limiting coverage and many instances only to specific diseases” or where it can be shown that the disease was physically in the building and “led to a government suspension of the business operations.”
Other Q2 AIG result highlights:
- Net investment income for Q2 was $3.4 billion, down from $3.7 billion over the same period the previous year.
- General Insurance (property/casualty) gross premiums written came close to $8.5 billion, versus $8.65 billion in the 2019 second quarter, a 2 percent dip.
- Net premiums written for General Insurance landed at $5.5 billion, compared with almost $6.6 billion a year ago.
- General Insurance saw a $343 million underwriting loss in the quarter, down from a $147 million underwriting gain in Q2 2019.
- General Insurance net premiums written grew 6 percent in Q2 for North America Commercial Lines (thanks to rate hikes), but swung to a loss for Personal Insurance.
- General Insurance International saw flat net premiums written (approximately $3.2 billion) year-over-year, with an underwriting loss for Commercial Insurance and declining, but still profitable underwriting income for Personal coverage.