Greenberg: Some Competitors Now Underpricing

AIG, the world's largest insurer by market value, said the first-quarter net income, excluding realized capital losses and the cumulative effect of an accounting change, reached a record $2.84 billion, a 19.9 percent increase from $2.37 billion reported a year ago.

The New York-headquartered AIG also reported that net premiums written for its General Insurance business rose 23.9 percent, to $10.21 billion from $8.24 billion reported one year ago. AIG's General Insurance operations include its domestic brokerage group, personal lines, mortgage guaranty, transatlantic holdings and foreign general insurance.

The first-quarter combined ratio for AIG's General Insurance was 93.22, up slightly from 93.13 reported a year ago. Underwriting profit for the General Insurance business rose to $643.55 million, a 20.8 percent increase from $532.54 million reported a year earlier. The net investment income for the General Insurance business also rose, up 9.3 percent to $856.82 million from $783.87 million.

In the first quarter, AIG estimates that net adverse reported loss development for the prior accident years came at around $200 million.

On a company-wide consolidated basis, AIG reported $23.64 billion in revenues for the first quarter, up 24.9 percent from $18.93 billion reported a year ago.

"AIG had a very good quarter led by excellent General Insurance results and strong gains in Life Insurance & Retirement Services," said Mr. Greenberg, commenting on his company's results.

(The results didn't meet everyone's expectation, however. The New York-based Morgan Stanley, in its commentary, said the quality of earnings was "decent, though not stellar." Morgan Stanley said AIG's property-casualty earnings fell short of its expectation because of the $200 million adverse reserve development.)

Mr. Greenberg also observed that AIG continues to benefit from the boost in premium rates in the insurance marketplace over the last few years. He added, however, that while market conditions continue to be satisfactory, rate increases are now leveling off and prices are even falling in certain lines.

"The substantial price increases over the past two years were very much needed, and in many classes of business, price increases are still necessary," Mr. Greenberg said. "AIG is maintaining a disciplined approach to underwriting and pricing."

"We are not going to chase business downhill," Mr. Greenberg said.

Mr. Greenberg observed that pricing is generally strongest in long tail classes of business, where buyers increasingly understand the importance of doing business with financially strong insurers. He said buyers in these businesses are less willing to take undue risk "by seeking the cheapest price."

But Mr. Greenberg noted that a number of insurers now appear to be selling insurance below the adequate pricing, focusing instead on market-share growth and cash-flow underwriting. He did not identify any by name.

He warned that such strategies could create "junk insurance." In the past, companies pursuing such strategies have often become impaired, Mr. Greenberg observed. "Buying long tail insurance from companies with low insurer financial strength or low long-term debt ratings is in effect purchasing junk insurance."

Mr. Greenberg also said AIG saw strong results in its Foreign General Insurance business. "Every major region of the worldwide network contributed to this performance," he said. Mr. Greenberg said that, as expected, the market is becoming "somewhat more competitive" but that rates generally remain adequate. "We continue to implement price increases where they are needed," he said.

Mr. Greenberg also detailed business growth in Asian markets. In China, AIG is making progress in its partnership with China's largest property insurer, Property and Casualty Company Limited, to develop the market for accident and health products.

"Training programs are already underway and we are pleased with the cooperation we are receiving," Mr. Greenberg said. In Japan, he added, AIG's direct-marketing efforts for auto and accident and health products continue to generate profitable growth.