AIG P-C Earnings UP 8.5 Percent

AIG Chairman Maurice Greenberg painted a favorable picture for p-c earnings throughout 2002 during a conference call, pointing to surging net written premiums in domestic p-c insurance (up more than 43 percent) and indications of improved cash flow in the first-quarter?a precursor to improved investment income.

On another future topic, Mr. Greenberg refused comment on a New York Times report stating he said he had almost completed a succession plan to be announced before AIG's annual meeting next month.

On Feb. 25 when asked about disclosing details of a sucession plan, he said that investors should simply "have confidence" that there was one in place.

The 8.5 percent rise in AIG's p-c first-quarter earnings?which came in at $1.1 billion, compared to $972 million in first quarter 2001?is before consideration of realized losses on sales of investments. Roughly $120 million in realized losses brought p-c income down to $933 million in first-quarter 2001, a figure that is 1.9 percent lower than that recorded in first-quarter 2000.

Life insurance operations showed bigger increases in income before and after realized gains. Excluding realized gains, life income was $1.4 billion, up 15.4 percent from first-quarter 2001. Including gains, life income grew 16.7 percent to $1.3 billion.

On the p-c side, underwriting results held steady, while net premiums written jumped more than 30 percent to $6.3 billion, for domestic and foreign operations together.

Combined ratios for both first-quarter 2002 and first-quarter 2001 were about 96.

"There is a flight to quality and we have the capacity that corporate America needs," Mr. Greenberg said, commenting on the 43 percent growth in domestic premiums and highlighting, in particular, the growth of its surplus lines operation, Lexington Insurance, where premiums were up nearly 123 percent.

"We are not a commodity risk underwriter," he said, adding that the amount of competition that has capital or capacity to satisfy the needs of Corporate America is limited.

"There is a flight to quality and a triple-A company is entitled to something more than one that is not," he said, later.

Responding to an analyst's question about whether retention changes, in addition to rate changes, were impacting premium figures in the p-c domestic insurance, Mr. Greenberg said that retentions did change as rates went up. But, he said, "we didn't take on a lot of new exposure for the rates we're getting."

Cash flow in the general (p-c) insurance operation was "terrific" in the first quarter, he added, noting if cash flow trends continue to hold, they will have an impact on investment income.

AIG reported that net cash flow from insurance and investment operations from general insurance was nearly $1.2 billion.

P-C investment income (basically interest on bonds and dividends on stocks) grew 4.1 percent to $754 million in the quarter.

Responding to a question that referred to comments made by executives at SAFECO in Seattle, indicating that their commercial lines prices may have reached their peak, Mr. Greenberg said: "We're talking about night and day when talking about SAFECO and AIG. The coverages that we're writing are totally different. You might as well be talking about water and steel."

"Rates are going up in our coverages and will continue to go up because they need to go up," he said. Earlier in the call, he had said that rates have not reached levels needed in many classes because, over the last decades, rates went down to levels that "were almost ludicrous."

He also pointed to "retraction of capacity" in the classes where AIG has historically been strong to strengthen his argument that rate increases would continue.

Queried about an announcement by The St. Paul this morning, that it is spinning off its reinsurance business, and rumors about other companies doing likewise, Mr. Greenberg did not agree that such actions–or new capital coming in– would cut the legs off the recovery.

"I don't think that's new capital coming in. Why are they spinning out these reinsurance companies? Because of great results? Hardly that," he responded.

Commenting on new capital in Bermuda, Mr. Greenberg said that capital is very limited. "Having capital without having people and experience and infrastructure is not very much."

While Allied World Assurance, the Bermuda company that AIG and Chubb invested in, is off to a very good start because it is staffed by experienced people, according to Mr. Greenberg, in "most of the other companies, you can't find anybody when you call because they've just got capital.

"I'm not worried about new capital in Bermuda. It's not enough to change this market," he said.