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AIG reports fourth-quarter profit, sees more rate hikes

Peter Zaffino

American International Group Inc. expects commercial rate increases to continue in 2022, following double-digit hikes the past three years, the insurer’s senior executives said Thursday.

In addition, AIG has significantly restructured its portfolio over the past four years, they said during a conference call with analysts discussing the insurer’s fourth-quarter results.

Average North America commercial insurance fourth-quarter rate increases were led by financial lines at 15%, excess casualty at 14%, and retail property up 13%.

Rate increases continue to outpace loss cost trends across AIG’s portfolio, said Mark Lyons, global chief actuary and head of portfolio management.

“My sense is that the 2022 market will continue to produce tight terms and conditions and strong pricing,” he said.

AIG’s reinsurance business decreased the proportion of property catastrophe business it writes, due to “less than adequate returns” and expanded its casualty and specialty lines business, he said.

The insurer has also restructured much of its insurance portfolio over the past four years, said Peter Zaffino, chairman and CEO.

Since 2018, AIG has reduced gross limits in its property, specialty and casualty business by $1 trillion and increased its reinsurance purchasing, Mr. Zaffino said.

“Since 2018 and through 2021, we’ve been able to grow net premiums written in commercial by over $3 billion while ceding an additional $2 billion in reinsurance premium,” he said. “Today, we have a different portfolio with a markedly different risk profile.”

Meanwhile, Mr. Zaffino said AIG expects to launch the previously announced initial public offering of its life and retirement business in the second quarter. The size of the offering will reflect market conditions, but AIG expects to retain at least a 50% stake in the business after the IPO, he said.

AIG reported fourth-quarter net income attributable to shareholders of $3.74 billion, compared with a $60 million loss in the same period in 2020, which included capital losses related to derivatives. For the full year, AIG reported a $9.36 billion profit, compared with a $5.97 billion loss in 2020.

General insurance, its main property/casualty insurance business, reported $5.96 billion in net premiums for the fourth quarter, a 7.1% increase over the year-earlier period. North America commercial lines accounted for $2.21 billion, a 10.8% increase.

AIG’s general insurance combined ratio for the quarter was 92.4%, a significant improvement from 102.8% in the final quarter of 2020.

Catastrophe losses for the quarter were $189 million, down from $545 million in the prior-year quarter, Mr. Lyons said.

Prior year loss development was $44 million favorable in the quarter, compared with a $45 million unfavorable development effect in the prior-year quarter, he said.