AIG's new boss creates flashback to its old one
NEW YORK, Nov 3 (Reuters Breakingviews) - Brian Duperreault's attempt to turn around insurer AIG is haunted by ghosts of the past. Hurricane hits were expected in the latest quarter, but the insurer's $1.7 billion loss also reflected a shocking new addition to reserves for prior years, an echo of the troubles that cost predecessor Peter Hancock his job. The new chief executive has no time to spare in restoring discipline to the firm's commercial insurance business.
More worrying is a fresh $836 million addition to loss reserves for prior years, the bulk of it covering 2016 claims under long-tail casualty policies. Hancock was turfed out in March after surprising the market with a $5.6 billion reserve charge. He had sharply curtailed AIG's casualty business, but the latest move suggests legacy issues continue to plague his successor. That's a big reason why the stock price fell more than 4 percent lower Friday morning.
Duperreault, who came to AIG from Bermuda-based Hamilton Insurance in May, insists the company's problems aren't unique. He promises to get back to profitability and growth by more carefully selecting and pricing the risks AIG underwrites. Commercial premiums fell by 13 percent in the latest quarter, suggesting he is instilling more discipline, and executives forecast double-digit increases in property insurance rates going forward. That's a start, but AIG has miles to go. The company's combined ratio, which measures losses and expenses as a percentage of premium income, hit an astronomic 195 percent in the third quarter, far above Chubb's 111 percent.
AIG's new boss declared 2018 will be the year of the underwriter at AIG. For an insurance company, the notion that such a truism is even worth saying out loud shows how far he has to go.
- American International Group posted a net loss of $1.7 billion, or $1.91 a share, in the third quarter, the company reported after the market closed on Nov. 2. Analysts on average had expected earnings of 79 cents a share for the period, according to Thomson Reuters data.
- The company had pre-tax catastrophe losses of $3 billion in the latest period, primarily from hurricanes Harvey, Irma and Maria. It also added $836 million to loss reserves, mostly to cover unanticipated commercial insurance losses from the 2016 accident year.