By Leslie Scism
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 14, 2020).
Global insurance conglomerate American International Group Inc.
swung to a fourth-quarter profit, the latest big insurer to post
improved results due to lower catastrophe claims.
The insurer is gaining ground in a multiyear turnaround effort
to overhaul its commercial property-casualty insurance business.
For the fourth straight quarter, this core unit turned a profit and
showed other operational improvement. The New York company posted
overall quarterly net profit of $922 million, reversing a
year-earlier loss of $622 million.
AIG's management has faced challenges to improve results since
the 2008 financial crisis, when it nearly collapsed into
bankruptcy-court protection and needed one of the biggest
federal-government bailouts. To fully repay taxpayers, AIG divested
a crown jewel Asian life-insurance unit and many other businesses
to roughly halve itself by assets.
The company's most-recent quarter included Texas tornadoes,
California wildfires and Typhoon Hagibis in Japan, but catastrophe
costs still fell far short of the year-earlier tally. In 2018,
Hurricane Michael flattened the area near Mexico Beach, Fla., and
California blazes caused historic devastation.
The most-recent results benefited from the extensive use of
reinsurance, under which other insurers are under contract to share
some costs, the insurer said. Net of this reinsurance, AIG's
catastrophe claims tallied $411 million in the quarter, down from
$826 million in the year-earlier period.
Shares of AIG, which reported the results before the start of
trading Thursday, were down 2.6% in early afternoon trading despite
a strong quarter.
AIG executives made some cautionary comments about future
results during the morning's earnings call that caused some
analysts to be less bullish about future results.
AIG discussed the negative impact of sustained, ultralow U.S.
interest rates on some life-insurance products and potentially
higher-than-expected costs for lawsuits and jury awards from
so-called social inflation in casualty claims against business
Chief Executive Brian Duperreault, who took the job in May 2017,
has hired dozens of experienced executives and underwriters from
across the industry. His team has toughened underwriting standards,
reduced policy sizes by tens of billions of dollars in the
aggregate, sliced overall expenses, added reinsurance coverage to
make results less volatile, and acquired two property-casualty
insurers. He said his team is focused on positioning AIG as a
top-performing company. Since the crisis, its performance, as
measured by various common financial metrics, has lagged behind
some large insurance rivals.
In a conference call with analysts Thursday, Mr. Duperreault
said the results "reflect the significant progress we made over the
course of 2019...to position AIG for long-term sustainable
In an indication of confidence that its property-casualty
business is in good shape, AIG shrank its $80 billion of gross
property-casualty reserves by $153 million in the quarter. In the
year-earlier period, it had bolstered them with a net $365 million
charge to reflect newly determined shortfalls.
AIG executives noted in the earnings call that after years of
flat or declining rates, rising prices for property and liability
policies sold to businesses helped the quarter's financial results.
Premium rates rose throughout the year with acceleration during the
fourth quarter, President Peter Zaffino said. He dubbed it "the
strongest quarter of rate improvement that we've seen over the last
decade," with percentage increases running in the double digits in
Still, AIG's gross premiums written -- an industry term for the
volume of insurance sold -- declined 5% in the core unit, to $7.31
billion for the quarter. Mr. Duperreault said some of the decline
stemmed from the shrinkage of policy sizes to reduce volatility.
"We have not been concentrating on the top line because we had to
concentrate on the bottom line," he said. Once the portfolio is
"rock solid," he said, "then you grow it."
AIG's closely watched adjusted after-tax income, which excludes
items judged nonrecurring, tallied $919 million, or $1.03 a share.
In the year-earlier period, it posted a loss of $559 million, or 63
cents a share. Analysts were expecting about $1 a share.
Beyond the turnaround in its core property-casualty unit, AIG's
Life and Retirement unit posted pretax profit of $839 million,
compared with $623 million in the prior-year quarter. The unit
sells life insurance, annuities and products for institutional
buyers. The earnings improvement came even as premiums and deposits
fell 14% to $7.1 billion primarily due to lower sales of fixed
annuities to individuals.
AIG's total net investment income was $3.6 billion in the fourth
quarter, compared with $2.8 billion in the year-earlier period.
Then, AIG cited net losses on alternative investments and equity
securities, among other developments, in what was a rocky quarter
for stocks and volatile credit markets.
While AIG is mostly invested in high-quality bonds, the company
and other large insurers typically invest a slice of their
investment portfolios in hedge funds and private-equity funds.
Write to Leslie Scism at firstname.lastname@example.org
(END) Dow Jones Newswires
February 14, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Historical Stock Chart
From Oct 2020 to Nov 2020
Historical Stock Chart
From Nov 2019 to Nov 2020