AIG Net Up 26% In Second Quarter

By Susanne Sclafane

NU Online News Service, July 22, 1:51 p.m. EDT?American International Group's Chairman Maurice Greenberg dismissed soft insurance market concerns today as his company reported a 25.7 percent jump in second-quarter consolidated net income.[@@]

AIG's consolidated net income for the quarter was a record $2.9 billion, or $1.09 per share, compared to $2.3 billion, or 87 cents per share, for the period last year. Operating income, excluding realized capital losses on investments, was an even $3 billion, up 19.2 percent from second-quarter 2003.

For AIG's p-c operations, operating income jumped 22.8 percent to $1.59 billion, while net premiums posted a double-digit gain of 17.4 percent.

"I can't find much to complain about in the quarter," Mr. Greenberg said, noting, however, that AIG's domestic property-casualty group did nonrenew some $275 million in written premiums.

But with the p-c operation's net written premium totaling $10.4 billion, $5.8 billion of which related to domestic business, the nonrenewals were seen as a drop in the bucket and not something that Mr. Greenberg viewed as a blemish on AIG's results or the overall market landscape.

The nonrenewals did prompt a mild comment about how undisciplined pricing practices by competitors can "unsettle the market" and add to its long-term volatility. And Mr. Greenberg said AIG also chose to nonrenew nearly $50 million in foreign p-c business, where pricing, terms and conditions, or loss experience did not meet its standards.

But "competition is, by and large, not unreasonable," he said.

"My belief is that some of the recent reports by companies to increase reserves may not be the only ones, and that might have a stabilizing effect on the market," he added.

For AIG, average rates were up about three percent overall, Mr. Greenberg said, noting that the figure accounts for business shed and for what price decreases the company was willing to take. He also said that AIG is one of the clear beneficiaries of a flight to quality, explaining why premium volume continues to grow.

July premium volumes were pretty much on target, he said. "As for those who believe that second quarter or second half may be significantly different from the first half of the year, I wouldn't sign on to that" theory, he said.

"Yes, there's competition in the property lines?and there's competition in all lines. You expect that in a market economy. Rates don't go in one direction," Mr. Greenberg said.

But "I do not view what we're seeing in 2004 as the beginning of a traditional down cycle that's going to go on for several years before righting itself. I do not believe that. I think it's a ways away from that," he asserted.

Asked specifically about comments made by Everest Re's chairman Joseph Taranto earlier this week that July 1 conditions in both the insurance and reinsurance markets were disappointing, and that insurers and reinsurers are aggressively pursuing market share, Mr. Greenberg said, "I do not believe, from what I see today, that we're on a slippery slope going down to chaos."

Asked specifically to describe exactly what types of terms and conditions would prompt AIG to nonrenew business, members of AIG's management team described certain types of severability provisions in directors and officers as one example, noting that AIG would not broaden its D&O contract "to pick up outright fraud."

Also, in excess liability, AIG will nonrenew in some cases where employment practices is being added back in, professional liability is being added in, or coverage for exposures like silica is being granted.

At one point, an analyst asked Mr. Greenberg to explain why AIG's stock sells at about the same price it did three years ago even though income is continually setting new records.

"You ought to have a better answer to that than we do," Mr. Greenberg retorted. "We don't control that. This is a market economy," he said.

"Our earnings speak for themselves," he added. "Maybe some of the analysts have not understood" AIG's operations "as they should. And maybe they're not reporting it as they should. Maybe you should think about that," he said.

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AIG Net Up 26% In Second Quarter

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