AIG falls as profit stung by investments, underwriting slump
AIG had 'severe losses' of $293 million in Q2, which it said was 'more than double the long-term average.'
(Bloomberg) – American International Group Inc. (AIG) fell as much as 5.1% after a slump in income from the insurer’s investment portfolio pushed second-quarter earnings below estimates.
Profit in the period fell from a year earlier as private equity and hedge fund performance weakened, the New York-based insurer said Thursday in a statement. Net investment income declined 12% to $3.1 billion.
Working to show underwriting profit by end of 2018
Chief Executive Officer Brian Duperreault, who’s been in charge for a little more than a year, is working to show an underwriting profit by year-end. The combined ratio for general insurance was 101.3 in the quarter, meaning AIG lost 1.3 cents for every premium dollar after claims and expenses.
“Heading into the quarter, there was an expectation that AIG is in the final innings of fixing its commercial-lines book,” Amit Kumar, an analyst at Buckingham Research, said in an email. “However, investors were negatively surprised by the high level of severe losses.” He said he sees “renewed uncertainty in terms of how much time will it take to turn this behemoth around.”
Related: AIG sees Q1 profit decline
AIG had “severe losses” of $293 million in the quarter, which it said was “more than double the long-term average.” Severe losses refer to non-catastrophe events greater than $10 million, according to AIG.
The shares fell 4.1% to $52.89 at 9:48 a.m. in New York, the steepest intraday drop since May 3.
Expense management
Duperreault said AIG made progress during the quarter. The insurer will start to show underwriting profitability as it enters 2019 and exits 2018, he said on an earnings call Friday. The CEO also stressed the importance of expense management, which he said has to be “a way of life” at the company.
This week, AIG agreed to sell 19.9% of its DSA Reinsurance unit to Carlyle Group LP. Duperreault has also hired senior executives, and last month bought Bermuda-based reinsurer Validus Holdings Ltd. for about $5.5 billion to expand abroad and enter new businesses.
Duperreault said the company is always looking for acquisitions, but doing deals is difficult to predict. “Life insurance would be a place I would look if I could,” he said on the call.
Net income was also dented by $200 million in restructuring costs mainly for “efficiency initiatives,” AIG said.
Other highlights:
- Net income fell to $937 million, or $1.02 a share, from $1.13 billion, or $1.19, a year earlier.
- Adjusted after-tax income per share was $1.05, below the $1.21 average estimate of 17 analysts surveyed by Bloomberg.
- Book value was $68.65 per share as of June 30, down from $69.95 on March 31.
- The underwriting loss was $89 million, compared with a gain of $149 million a year earlier.
- The life and retirement business had adjusted pretax income of $962 million, down from $993 million from a year earlier.
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