AIG returns to profit in first quarter

AIG posted better than expected earnings in the first quarter, helped by cost cutting and lower catastrophe losses. It follows healthy first quarter results from other global insurers, although Swiss Re has seen income at its Corporate Solutions business clipped by higher catastrophe losses. Following AIG’s shock $3bn loss in the fourth quarter of 2016, the insurance group has returned to profit in Q1 2017. AIG’s net income swung to a $1.19bn profit, up from a $183m loss in the same period of 2016. Earnings per share of $1.36 easily beat average analysts’ forecast of $1.08, according to Reuters. The improved first quarter result was in part down to cost cutting at the New York-based insurer. General operating and other expenses declined $560m, or 18.6%, to $2.4bn. AIG, which is currently recruiting a new chief executive, also made progress on its two-year turnaround plan, aimed at appeasing activist investors. AIG repurchased $4.7bn in shares this year and approved a further $2.5bn repurchase, bringing the group closer to its goal of returning $25bn to shareholders by the end of 2017. The company also completed the sale of four out of twelve international operations and intends to sell to Fairfax Financial Holdings. Despite progress, AIG’s commercial business failed to make an underwriting profit in the first quarter. The unit swung to an underwriting loss of $82m from a $109m profit in the same period of 2016. The combined ratio climbed 4.5 percentage points in Q1 2017, despite lower catastrophe losses. Catastrophe losses for commercial insurance were $200m in the first quarter of 2017, compared with $222m in the same period of 2016. In casualty lines the combined ratio deteriorated 8.6 percentage points to 105.4%, while the property combined ratio improved 1.4 percentage points to 97.7%. AIG’s first quarter 2017 was affected by $81m of adverse prior year reserve development for liability and financial lines. This included a $102m addition related to the change in the UK’s Ogden discount rate and a $41m deferred gain from an adverse development reinsurance agreement with National Indemnity Company. However, an improved investment result helped AIG’s commercial insurance unit report a 28% increase in pre-tax operating profit to $849m. Commercial net premiums in Q1 were 17% lower at $3.63bn. The reduction in net premium reflected increased reinsurance purchasing and underwriting actions aimed at repositioning AIG’s commercial portfolio. AIG’s improved first quarter followed strong results from a number of large global insurance groups. Chubb beat analysts’ forecasts by more than doubling net income to $1.09bn in Q1, reflecting higher underwriting and investment results. XL Catlin’s first-quarter net earnings jumped to $152.8m from $21.9m in the same period of 2016, despite a $75m charge for changes to the Ogden rate. This week Allianz reported that group net income in the first quarter fell 15.3% to €1.8bn, although operating profits rose 9.4% to €2.9bn. Releasing preliminary first quarter results, Allianz said that its property/casualty combined ratio deteriorated 2.3 percentage points to 95.6% from higher catastrophe and large losses. Results at Swiss Re’s direct commercial business were also down on higher losses. Swiss Re Corporate Solutions’ net income fell to $55m in the first quarter of 2017 from $80m in the same period of 2016 as the unit digested $30m of claims from Cyclone Debbie in Australia. Corporate Solution’s combined ratio worsened by 9.2 percentage points to 99.6%. The Zurich-based reinsurance and insurance group saw its overall net profit almost halve in the first quarter to $656m after it was hit by $350m of losses from Cyclone Debbie. Swiss Re’s gross premiums during the quarter also declined, falling by 10.5% to $10.2bn as the reinsurer reacted to a “difficult” pricing environment. Premium volume decreased by 2% at the April reinsurance renewal.

AIG returns to profit in first quarter

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