AIG Disappoints Again, Posts Wider-Than-Expected Loss
November 02 2017 - 4:52PM
Dow Jones News
By Leslie Scism
American International Group Inc. swung to a $1.74 billion
third-quarter loss as it absorbed one of the insurance industry's
single biggest hits from hurricanes and also boosted unrelated
claims reserves.
The results reflect the first full quarter under the leadership
of Brian Duperreault, who was named CEO in May as the global
insurance conglomerate was struggling to improve its profitability.
The industry veteran has begun putting his stamp on the company
with new hires as he seeks to halt years of shrinkage and expand
the company again.
But the quarter also included an unusual, back-to-back string of
hurricanes that flooded Houston for days and left much of Puerto
Rico devastated.
AIG's pretax catastrophe losses totaled $3 billion, primarily
from the hurricanes Harvey, Irma and Maria. AIG had estimated the
catastrophe cost last month at up to $3.1 billion. Across the
global insurance Industry, insurers are facing a bill of $68
billion to $148 billion, based on estimates by risk-modeling
firms.
The separate pretax reserve boost of $836 million in AIG's
commercial-insurance unit came as a surprise. Reserve boosts at AIG
-- a leading world-wide seller of often-complicated property and
casualty policies to multinationals and other large companies --
had plagued his predecessor's tenure, and many investors were
hoping the worst was behind.
The increase, which amounts to just under 2% of existing
reserves, primarily relates to policies sold in 2016. In Thursday's
news release, Mr. Duperreault said the strengthening was "based on
additional information that became available in the third quarter."
The increase primarily relates to policies sold last year, the
company said.
Mr. Duperreault said AIG is "laser focused [on] taking actions
to enhance underwriting tools and, more importantly, our talent
base -- so much so that I have declared 2018 the 'Year of the
Underwriter.'"
The reserve boost meant AIG's results didn't meet analysts'
consensus expectation of a loss of 79 cents a share on an operating
basis. Instead, AIG posted an operating loss of $1.11 billion, or
$1.22 a share, compared with profit of $1.12 billion, or $1.01 a
share, in the year-earlier period.
Insurers' operating results exclude realized capital gains and
losses in their investment portfolios and some other items
considered nonrecurring. AIG's net loss of $1.74 billion compares
with a profit of $462 million in the year-earlier period.
AIG's shares fell 3.6% in after-hours trading.
Since arriving, Mr. Duperreault has shuffled the company's
structure and top leadership, and hired numerous senior executives
from brokerage and consulting firm Marsh & McLennan Cos., which
he ran from 2008 to 2012, and other insurance companies.
He has pledged to halt the retrenchment that began when AIG
accepted a U.S. government bailout in 2008 and needed to sell
assets to repay taxpayers.
He scored an early victory in late September when U.S. officials
voted to remove federal oversight of AIG as a "systemically
important financial institution."
The removal of the label frees the company of tighter capital
rules, federal approval for large mergers and placement of
government examiners at the firm.
In Thursday's release, AIG said its consumer insurance
operations delivered a strong profit, despite the catastrophe costs
incurred in its business of selling home, car and other insurance
to wealthy people. Its consumer businesses also include
retirement-income products and life insurance. All together, these
consumer businesses delivered $1 billion of pretax operating
income.
Like Prudential Financial Inc. and some other insurers this
quarter, AIG benefited from a rallying stock market, which
increased assets under management in market-linked products.
The boost to AIG's reserves largely isn't covered under a
reinsurance pact announced earlier this year with a unit of Warren
Buffett's Berkshire Hathaway Inc.
In contrast to quarterly reports under Mr. Duperreault's
predecessor, Peter Hancock, this one tallied just $275 million of
share repurchases during the quarter. Mr. Hancock had prioritized
such buybacks, and they totaled in the billions of dollars per
quarter. AIG said it had closed on the sale of a remaining block of
"life settlements," with $1.1 billion of cash proceeds to AIG.
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
November 02, 2017 16:37 ET (20:37 GMT)
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