AIG Stung by Pandemic Even as Key Underwriting Metric Improves

(Bloomberg) -- American International Group Inc. was stung by catastrophes including the coronavirus pandemic and volatility tied to derivatives in the fourth quarter, even as the insurer was able to post further improvements in a key underwriting metric for property and casualty coverage.

Catastrophe costs totaled $545 million in the fourth quarter, driven by hurricanes and the pandemic, New York-based AIG said Tuesday in a statement. Volatility in derivatives and hedges also contributed to a net loss in the period. Still, the sprawling P&C operation posted an improved profitability measure.

Chief Executive Officer Brian Duperreault has been reshaping the insurer for years, trying to minimize volatility in results, improve property and casualty underwriting and now simplify the company through the planned split of the life and retirement business from P&C. Duperreault, who’s handing the reins to his key deputy Peter Zaffino in March, said fourth-quarter results highlighted the work they’ve done.

“We are effectively managing the impacts of Covid-19 and natural catastrophes and remain well-capitalized in this environment of unprecedented uncertainty,” Duperreault said in the statement.

Adjusted earnings per share of 94 cents barely beat the 93-cent estimate from analysts in a Bloomberg survey.

The insurer’s shares dropped 26% last year and have since climbed 11%.

The adjusted combined ratio, a measure of underlying profitability at P&C, improved from a year earlier. Zaffino previously helped oversee the reshaping of the business, which had been getting routinely burned by higher-than-expected costs on old policies.

The company posted $178 million of catastrophe costs tied to the pandemic, primarily in its travel, contingency and Validus reinsurance businesses. Excluding costs from the pandemic, the P&C business took in slightly more in premiums than it paid out in losses and expenses, even with numerous hurricanes in the three months. AIG has already reported costs in previous quarters because of Covid-19 and warned that the health crisis hurt sales of travel insurance.

In October, AIG announced it would shed its life and retirement operation, the final dismantling of a company upended by the global financial crisis. No decisions have been made regarding how it will initially dispose of as much as 19.9% of that business, AIG said in Tuesday’s statement.

The life and retirement business posted a gain of almost 20% in adjusted pretax income, to $1.03 billion, in the fourth quarter, helped by increases in its group retirement and institutional markets businesses as well as private-equity returns. While premiums across the life and retirement operations were down 4%, sales have improved from the first half of 2020, the insurer said.

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