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AIG sees commercial rates soar as COVID-19 hits results

Brian Duperreault

American International Group Inc.’s adjusted net income more than halved in the second quarter, reflecting a significant increase in coronavirus-related losses, but the insurer’s top executive said commercial insurance rates were increasing at the fastest pace in decades.

“With respect to rate, the current environment is the strongest I’ve seen in more than 20 years, and the increases over the last several quarters accelerating due to COVID-19,” said Brian Duperreault, CEO of AIG, on a Tuesday call with analysts.

The rate increases are broad-based and global, and “the changes we are starting to drive in terms and conditions, particularly in commercial property, are remarkable,” he said.

Rates across AIG’s business increased 16% on average in the second quarter, said Peter Zaffino, AIG president and global chief operating officer, on the call.

Retail property and excess casualty rates were up more than 35%, public company directors and officers liability rates increased more than 50%, and employment practices liability rates were up more than 30%, he said.

AIG’s after-tax net income, adjusted to exclude the effect of the sale of its legacy portfolio, which it completed in the second quarter, fell to $571 million, down 55.1% compared with the same period last year

AIG reported $674 million in catastrophe losses net of reinsurance in the second quarter, comprising $458 million in coronavirus-related losses, $126 million from civil unrest, and $90 million in natural catastrophe losses, Mr. Zaffino said.

So far this year, AIG has reported $730 million in COVID-19 losses, he said.

The losses hit a broad range of policies, including travel insurance, contingency, property, trade credit, marine, casualty, workers compensation, accident and health, financial lines and reinsurance, Mr. Zaffino said.

About 70% of the workers comp losses were related to health care policyholders, he said, noting that about 50% of the COVID-19 comp claims have already closed.

In expectation that COVID-19 losses may lead to a reduction in reinsurance capacity, AIG bought an additional $500 million in catastrophe reinsurance capacity during the second quarter, Mr. Zaffino said. AIG has overhauled its reinsurance purchasing program since Mr. Duperreault was named CEO in 2017.

AIG’s general insurance unit, which includes its property/casualty business, reported a second-quarter combined ratio of 106%, deteriorating from 97.8% in the same period last year.

The general insurance unit reported net premium written of $5.55 billion, down 16% compared with the 2019 second quarter; however, North American commercial lines net premium written increased 6% to $2.5 billion. 

Over the past three years, AIG has completed the restructuring of its business, including re-underwriting its books of business, recruiting numerous new underwriting executives and selling its legacy portfolio, Mr. Duperreault said.

The insurer can now focus on its core businesses and “strategically deploy capital toward growth, particularly in the general insurance commercial lines where we are seeing some of the strongest market conditions in our careers,” he said.

More insurance and risk management news on the coronavirus crisis here.