Baugh moves to reassure brokers once more as US government raises bail-out to $150bn.
AIG UK managing director Lex Baugh has moved to reassure brokers after the insurer’s US parent reported a $24.5bn (£15.9bn) loss in the third quarter and restructured its government bail-out.
In a leaked internal document seen by Insurance Times, Baugh this week urged its broking partners to have the confidence to renew policies with AIG and detailed the latest rescue package.
“I promised you over a month ago that despite the current economic conditions we would continue to serve you well with the things that drew you to us in the first place – our enviable product range, premier customer service and rapid response to claims. Today we renew that commitment,” Baugh said.
“Personally, I would like to thank you for the support, patience and time you have given AIG UK. It is during these difficult times that great partnerships are forged and I am convinced that our businesses will continue to prosper together.”
AIG was this week rescued by the US authorities for a second time. The government scrapped its initial $125bn bail-out and replaced it with a new $150bn package.
As part of the deal, the US Treasury will buy $40bn of newly issued AIG preferred stock, and swap the original two-year bridge loan for a $60bn loan at a lower rate of interest.
The Treasury will also put up $50bn to boost AIG securities lending facility and take credit default swaps and mortgage-backed securities off AIG’s books, the toxic assets that the insurer underwrote.
The bail-out will be funded by the Treasury’s $700bn troubled asset relief programme (TARP).
Baugh described the bail-out restructure as “landmark”.
“The arrangements provide us with a durable capital structure and greater financial flexibility to complete our announced restructuring plan.”
He also reassured customers on the business’s position: “You can place and renew business with us without question,” he said. “Governments and regulators around the world can be confident that policyholders’ interests will be fully protected.”
The details of the rescue package were announced just as AIG revealed a net loss of $24.47bn for the third quarter, amid huge investment losses and write-downs. This compared to a net income of $3.09bn in the third quarter of 2007.
AIG said this year’s results were badly affected by global financial dislocation, catastrophe losses and charges related to its restructuring.
On the company’s third-quarter results, Baugh said that while the macroeconomic landscape had clearly weakened in the two months since the third quarter ended in September, the third quarter was “hostile for virtually every sector across the board”.
He then detailed the company’s top-line results. It reported an adjusted net loss of $9.24bn in the third quarter, compared to adjusted net income of $3.49bn in the same period last year. AIG said insurance premiums and other considerations grew 7%, despite the challenging conditions.
Baugh said business retention rates remained strong, exceeding 90% in some areas, and new business was still being won.
American International Underwriters (AIU) delivered an underwriting profit of $99m, at a combined ratio of 96.7%, including catastrophe losses of $133m. Net premiums grew by 11.5% over earlier year results, including 7.3% foreign exchange benefit.
Nic Walsh, president of AIU, said: “The core foreign general insurance operations once again produced good top-line growth and an underwriting profit, despite the unusually high level of catastrophe losses.
Unprecedented conditions in the financial markets impacted our results, but nevertheless foreign general delivered an underwriting profit, excluding catastrophes, of $232m, a combined ratio of 92.97%.”
He added that business retention exceeded 90% in some areas and that the business had maintained underwriting discipline.
AIG results: third-quarter 2008
- Net loss of $24.47bn, compared to net income of $3.09bn in third quarter of 2007
- Adjusted net loss of $9.24bn, compared to adjusted net income of $3.49bn in third quarter of 2007
- Premiums grow 7%
- AIU underwriting profit of $99m at combined ratio of 96.7%