Thursday, 27 July 2017

Huge reserve hike pushes AIG to multi-billion-dollar loss

Restructuring insurer’s full year result hit after multi-billion-dollar loss in Q4

Restructuring insurance group AIG made a $3bn (£2.4bn) loss in the fourth quarter of 2016 after having to strengthen its commercial insurance reserves by $5.6bn, mainly for US liability business.

The loss was far deeper than the €1.8bn loss the insurer reported in the fourth quarter of 2015.

The multi-billion-dollar loss in the fourth quarter pushed AIG to a loss of $849m for the full 2016 year, compared with a profit of $2.2bn in 2015.

Commercial hit

The reserve hike hit AIG’s commercial insurance unit hard. The unit made a pre-tax loss of $5bn in the fourth quarter of 2016 (Q4 2015: loss of $2.4bn) and produced a combined operating ratio of 241.6% (Q4 2015: 163.3%)

Personal lines insurance, by contrast, returned to profit. The division made a pre-tax profit of $176m (Q3 2015: loss of $27m) and reported a combined operating ratio of 96.9% (Q4 2015: 103.1%).

The net reserve strengthening for the whole of 2016 was $5.3bn. Some 80%, or $4.2bn, of this will be covered by the adverse development reinsurance cover that AIG bought from Berkshire Hathaway unit National Indemnity.

‘Decisive actions’

AIG chief executive Peter Hancock (pictured) said: “We took decisive actions in 2016 to dramatically reduce uncertainty and deliver higher quality, more sustainable earnings in the future.

“The comprehensive adverse reserve development cover significantly reduces the risk of further reserve additions in some of the most volatile lines, and we responded definitively to emerging severity trends that we believe are materially impacting the overall US casualty market.”

Hancock was also upbeat about AIG’s future performance. He said: “Going forward, we expect to see the results from our improved underwriting platform, reduced expense base, and the strong improvement in our business mix.”

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