AIG faces $800m Q4 cat bill

AIG currently expects fourth-quarter pre-tax cat losses of between $750m and $800m, but said its general insurance business will enter 2019 with a slight underwriting profit. Speaking at Goldman Sachs’ US Financial Services Brokers Conference yesterday, AIG’s CEO Brian Duperreault said the company’s “firefighting” is over, while Peter Zaffino, CEO of general insurance, said primary property rates may increase this year. Mr Duperreault said that among Q4 losses, California wildfires are set to cost the insurer $150m to $175m pre-tax. Validus Holdings, which AIG acquired in July, is expected to suffer losses of about $60m from the fires. AIG’s CEO said losses from Hurricane Michael are trending at the upper end of previous guidance. AIG has placed losses for Michael between $300m and $500m. According to a transcript of the presentation from results-reporting service Seeking Alpha, Mr Duperreault explained that AIG is on track to meet its $450m run rate expense savings, net of investments. The majority of these savings will be made in general insurance business and AIG’s parent company. AIG’s CEO also said the firm expects an overall 8% adjusted ROE at the beginning of next year, but is targeting double-digit figures in a process that could take up to three years. “I'm pleased to reaffirm that general insurance is progressing according to plan and is on track to enter 2019 at a slight underwriting profit,” said Mr Duperreault. Adding: “The problems that AIG had when I arrived were the result of over a decade of firefighting and we are moving beyond that here. We are now on the right path.” He went on to explain how AIG has set about reversing its fortunes, including a focus on pricing and risk selection. “Well, it's basic blocking and tackling in the underwriting side. And I think we've been talking about improving the volatility, mix of business, underwriting processes, risk selection, pricing: it's all the basics. And we've been deploying that, bringing people in, organising the company better, and these [results] will begin to show the results of all those actions,” said AIG’s CEO. He added that the insurer would have previously underperformed in either a soft or hard market, but said it does not need a hardening market to turn things around. “Our problems are of our own making and we'll fix them. And if we get a hard market or any kind of market that would put some tailwind to it, that would be great, but we don't need it to fix this company,” said Mr Duperreault. Mr Zaffino said prices increases at the 1 January property retrocession reinsurance renewals could impact primary rates this year. “I do think there's less supply in the retro market. There is more demand. So that's going to push some rate through the retro market and that will have to be earned and transferred throughout the year,” he began. “And then I do believe that that will put a little bit of pressure perhaps on reinsurance pricing throughout the first half of the year, but we'll see in the back half… And I think that you'll start to see, depending on peak zones or loss affected, it's always with the caveats, but I believe that we'll see some pricing at the direct side of the business,” Mr Zaffino added. AIG also announced this week that it has promoted Mark Lyons to replace its chief financial officer (CFO) and former chief risk officer (CRO) Sid Sankaran.

AIG faces $800m Q4 cat bill

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