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AIG expects more rate increases across property, liability lines

Peter Zaffino

Commercial insurance pricing will likely rise further at year-end renewals, senior executives at American International Group Inc. said Wednesday while discussing the insurer’s third-quarter results.

Property insurance will lead the increases, but some liability lines will also see rate hikes, they said.

AIG reported a higher third-quarter profit despite substantial losses from Hurricane Ian and deteriorating past-year losses from its financial lines business.

AIG reported third-quarter net income of $2.7 billion, up 62.8% compared with the same period last year. Net investment income fell 28.2% to $2.67 billion.

The insurer reported $600 million in catastrophe losses for the third quarter, including $450 million related to Hurricane Ian. Of the Ian losses, $125 million was from AIG Re, said Peter Zaffino, chairman and CEO. AIG has reduced its assumed reinsurance limits in Florida by about 60% since 2018 as part of its underwriting overhaul that followed the appointment of a new management team.

Insurance rates continued to rise in the third quarter with AIG’s North America commercial business seeing an average 9% rate increase, excluding workers compensation, Mr. Zaffino said. Workers comp is one of the few commercial insurance lines that has not seen substantial rate hikes over the past four years.

Areas within North America commercial that continued to see double-digit increases included Lexington, its surplus lines business, which saw 20% increases, cyber liability up 32% and excess casualty up 12%. International rates increased 6% on average, Mr. Zaffino said.

Looking ahead to renewals, Mr. Zaffino said rates increases will be led by the property insurance sector, but casualty lines will also be affected as insurers and reinsurers make decisions on how to deploy their capital.

Overall loss costs trends have accelerated since AIG reported a 6% increase at the end of the second quarter, he said.

“Due to inflationary and other related factors that have resulted in an increase in property loss costs, we are increasing our aggregate loss cost trend to 6.5% both in North America and international,” Mr. Zaffino said.

In the third quarter, AIG also recorded $72 million in favorable past-year loss development. In North America, nearly every line of business was favorable expect financial lines, which was unfavorable by $660 million, predominantly because of losses in 2018 and 2019 on its excess directors and officers liability business, Mr. Zaffino said.

Prior to its underwriting remediation project, AIG wrote significant vertical limits on single D&O programs. Since then, it has reduced its stacking exposure to individual policyholders, he said.

In addition, prior to 2018 AIG wrote multiyear policies that affected its 2019 and 2020 losses, said Shane Fitzsimons, chief financial officer.

“We have strategically shifted away from this business,” he said. In addition, since 2018 AIG has reduced its U.S. primary financial lines limits by $32 billion on a comparative basis, or nearly 80%. Primary limits for corporate and national D&O have fallen by 50% and private D&O limits have fallen by nearly 85%, he said.

“And in all cases rates increase substantially over this time period since 2018,” Mr. Fitzsimons said.

Gross premium written in AIG’s general insurance business fell less than 1% in the third quarter to $9.24 billion and net premium written decreased 2.8% to $6.4 billion. Excluding the effect of foreign exchange, net written premium increased 3% over the prior-year period.

North America commercial lines reported $2.76 billion in net written premium, up 7% compared with the same period last year. International commercial lines reported $1.99 billion in the quarter, down 3.8%.

Financial lines premium growth in the third quarter was also negatively affected by stock market conditions, which saw a reduction in initial public offerings and special purpose acquisition company, or SPAC, deals, said David McElroy, CEO of general insurance.

AIG’s combined ratio for its general insurance business improved to 97.3% in the third quarter compared with 99.7% in the same period last year. Its North America commercial lines combined ratio for the third quarter improved to 113.6%, compared with 120% in the 2021 period, and its international commercial lines combined ratio improved to 75.4% compared with 104.8% last year.

During the quarter, AIG also completed the initial public offering of its life and retirement business, raising $1.7 billion.