American International Group's property and casualty combined ratio will "see improvement" this year, Peter Hancock, CEO of AIG's P&C operations, told analysts this morning after problems at the P&C unit drove down operating income.
Underwriting profits swung from a gain of $232 million in Q1 2013 to a loss of $97 million in this year's first quarter, and net premiums earned fell 4% to $8.23 billion. The underwriting loss was in part due to severe losses in international commercial and North American consumer activities, partially offset by improvements in international consumer operations.
The life operations, however, did well, delivering over $1.4 billion of operating earnings, the highest level of quarterly earnings in our history, AIG officials said.
All told, AIG's Q1 net income dropped 27% to $1.6 billion.
John Doyle, CEO of AIG Property Casualty Global Commercial Insurance, and responsible for AIG's commercial property and casualty businesses worldwide, said on an investor conference call that the consumer losses stemmed primarily from "three rather unusual fires."
But, he said, "I was reassured by the fact that most of the severe losses were from property policies written some time ago," and therefore not as a result of new exposure.
He added, "We are growing our property business," and "there is no evidence that is the cause of the elevated severe losses that we had in the last three quarters.
Hancock added that AIG P&C saw new business growth in large-limit and middle-market business globally, particularly in Europe.
John Nadel, an analyst at Sterne Agee in New York, viewed AIG's first quarter P&C results as "disappointing relative to peers and consensus expectations."
He said that he is reducing Sterne Agee's forecast of P&C earnings "modestly," and it is being offset modestly better results from the life operations and the mortgage guaranty business. While overall forward estimates remain unchanged, although below industry consensus, Nadel said that the lack of meaningful improvement in P&C underwriting results combined with downward pressure on pricing is likely to pressure the stock.
Nadel said the quarter included 12 severe losses totaling $186 million vs. three losses totaling $60 million for the same quarter a year ago.
"This marks the third consecutive quarter of elevated severe loss activity and we believe the higher frequency of severe losses will continue given AIG P&C's continued business mix shift towards property lines, along with recent changes in the reinsurance program which have resulted in AIG retaining more risk," Nadel said.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.