NU Online News Service, Feb. 25, 2:11 p.m. EST
While American International Group reported a net profit of more than $11 billion, its property and casualty subsidiary Chartis came in with an underwriting loss of $5.2 billion, primarily because of its reserve charge.
Earlier this month, New York-based insurer AIG announced it would take a $4.1 billion charge in the fourth quarter to bolster its reserves. Today, the company reported its fourth quarter and year end results, showing a greater underwriting loss than last year.
For the 2010 fourth quarter, net underwriting loss stood at $5.2 billion compared to a loss of $2.6 billion for the same period in 2009. This translated into a combined ratio of 160.5, up 28 points. However, net premium written increased 9 percent, or $649 million, to $7.6 billion.
For the year, underwriting loss stood at $5.5 billion, up from $2.6 billion in the prior year. The combined ratio stood at 116.8, up 8.8 points from 2009. Net premium written grew 3 percent, or $959 million, to $32 billion.
During a conference call with financial analysts, Robert H. Benmosche, president and chief executive officer for AIG said the company decided to take the reserve charge after an in depth review of its reserves. He said the action was a testament to the company's strength that it could take the charge, while other insurers are using their reserves to prop up their balance sheets.
During a question and answer period, an analyst pointed out that the reserve charge accounted for about 51 points of the company's combined ratio. He asked if this quarter was an indicator of the company's outlook for the future.
Executives said that in part there were expenses in the business resulting from a shift from pure commercial to other insurance products and those costs would level out in the future.
Kristian P. Moor, executive vice president for domestic general insurance said the combined ratio increase could be broken down into a couple of developments.
For one, as reserves are strengthened in one market, loss ratios are affected accordingly. There were "additional attritional losses" that increased the loss ratio and required adjustments retroactively.
Additionally, natural catastrophe losses totaled $200 million during the quarter, primarily from the Australia floods and Arizona hail storms.
There were also $100 million in losses that did not meet the criteria for natural catastrophe losses. These were severe losses in the $5 million to $20 million range that impacted the combined ratio.
When asked about the standing of AIG in the insurance industry, Mr. Benmosche still remains a formidable player in the marketplace.
"We've come through a horrible period of time where there were questions about the survivability of AIG, but when you look at our retentions, they remained extremely strong and it is strong because of the core competency of the people of this company," he said. "We are seeing clients coming back. So I would say that we are clearly the leader here and that is why we are starting to not write certain businesses, because we have the confidence we can do that. And as the markets improve, we'll come back into those markets."
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