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American International Group Inc. again reported a deterioration in quarterly profit as its new management team continues efforts to turn around the commercial insurance giant.
With a focus on expense reduction and improved underwriting, the insurer remains on course to report an underwriting profit “as we exit 2018,” President and CEO Brian Duperreault said on a conference call with analysts Friday.
“Expense management has got to be a way of life around here,” he said, adding the insurer still needs to address such things as its manual processes.
Mr. Duperreault rejoined AIG last May, after more than 20 years running other insurance sector companies, and instituted a turnaround plan for the struggling insurer, including a revamp of its senior management.
AIG reported a second-quarter 2018 profit of $937 million, a 17.1% decrease compared with the same period last year, as it reported higher-than-expected severe losses in its property/casualty business, lower investment income and a $200 million restructuring charge, largely related to its property/casualty units.
The profit drop marks a continuation of a trend of deteriorating results over the past year as the new management continues to overhaul the insurer’s operations. AIG’s stock price fell more than 3% on Friday morning following the results announcement late Thursday.
Catastrophe losses were lower than expected, but higher frequency severe losses — which include noncatastrophic first-party losses, among other things — totaled $293 million, more than double the long-term average, the insurer said in is earnings statement. Investment income fell 12% compared with last year’s second quarter to $3.1 billion.
“The severe losses were largely attributable to policies incepted in 2017 and earlier, and we believe the underwriting changes we are making will address the root causes of these losses,” Peter Zaffino, CEO of general insurance, said on the call.
As part of its effort to improve underwriting performance, AIG has reduced property underwriting limits from $2.5 billion globally to $1 billion in the US and $750 million internationally, with the exception of fronted policies, Mr. Zaffino said.
“We are also in process of revising our use of deductibles, reducing exposures to certain industries and putting new teams of seasoned underwriters in place,” he said, noting that AIG has hired 125 senior underwriters globally since the beginning of the year.
The restructuring charge “illustrates our ongoing efforts to eliminate redundancies, streamline our operations, drive process improvement and instill accountability for expenses,” Mr. Zaffino said.
General insurance, which includes its commercial and personal lines property/casualty business, reported net written premium of $6.97 billion, up 4.6% compared with the 2017 second quarter. The increase was due largely to lower ceded premiums driven by changes in its 2018 reinsurance program and growth in its travel insurance business, AIG said.
The combined ratio worsened to 101.3% from 97.7%.
North America net premium written increased to $3.24 billion in the 2018 second quarter, up 3.6%. Commercial lines net written premium for North America edged up less than 1% to $2.32 billion, and the sector reported an underwriting loss of $127 million, compared with an underwriting loss of $58 million in the same period last year.
On its international general insurance book, AIG reported $3.74 billion in net premium written, up 5.5% compared with the same period last year, largely due to growth in the insurer’s accident and health business in Asia/Pacific and growth in its European financial lines business, AIG said. International commercial lines net premium written was $1.59 billion, up 5% compared with the 2017 period. The combined ratio for the international business worsened to 99% compared with 94.3% in the 2017 quarter.
The $5.5 billion acquisition of reinsurer Validus Holdings Ltd. in July will help improve AIG’s combined ratio by about 1% going forward, and the restructuring efforts should shave another 2% from the combined ratio, Chief Financial Officer Sid Sankaran said on the call.
Mr. Duperreault said he is looking for further acquisitions, including deals that would expand AIG’s life insurance business internationally and its U.S. small commercial insurance business. “But acquisitions are very difficult to predict,” he said.
Meanwhile, earlier this week, AIG agreed to sell 19.9% of the runoff reinsurer it formed earlier this year to manage its legacy business
to Washington-based investment management firm Carlyle Investment Management L.L.C. for about $476 million.
Since returning to American International Group Inc. in May 2017 to lead the insurer’s turnaround following disappointing financial results, Brian Duperreault has made a series of high-level appointments as he has restructured AIG’s operations.