AIG Absorbs Shocks From Storms -- WSJ

Insurer swings to loss totaling $1.74 billion; separate claim reserve surprises investors

By Leslie Scism 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 3, 2017).

American International Group Inc. swung to a $1.74 billion third-quarter loss as it absorbed one of the insurance industry's single biggest hits from hurricanes and also boosted unrelated claims reserves.

The results reflect the first full quarter under the leadership of Brian Duperreault, who was named CEO in May as the global insurance conglomerate was struggling to improve its profitability. The industry veteran has begun putting his stamp on the company with new hires as he seeks to halt years of shrinkage and expand the company again.

But the quarter also included an unusual, back-to-back string of hurricanes that flooded Houston for days and left much of Puerto Rico devastated.

AIG's pretax catastrophe losses totaled $3 billion, primarily from the hurricanes Harvey, Irma and Maria. AIG had estimated the catastrophe cost last month at up to $3.1 billion. Across the global insurance Industry, insurers are facing a bill of $68 billion to $148 billion, based on estimates by risk-modeling firms.

The separate pretax reserve boost of $836 million in AIG's commercial-insurance unit came as a surprise. Reserve boosts at AIG -- a leading world-wide seller of often-complicated property and casualty policies to multinationals and other large companies -- had plagued his predecessor's tenure, and many investors are hoping the worst is behind.

The increase, which amounts to just under 2% of existing reserves, primarily relates to policies sold in 2016, the company said. In Thursday's news release, Mr. Duperreault said the strengthening was "based on additional information that became available in the third quarter."

Mr. Duperreault said AIG is "laser focused [on] taking actions to enhance underwriting tools and, more importantly, our talent base -- so much so that I have declared 2018 the 'Year of the Underwriter.'"

The reserve boost meant AIG's results didn't meet analysts' consensus expectation of a loss of 79 cents a share on an operating basis. Instead, AIG posted an operating loss of $1.11 billion, or $1.22 a share, compared with profit of $1.12 billion, or $1.01 a share, in the year-earlier period.

Insurers' operating results exclude realized capital gains and losses in their investment portfolios and some other items considered nonrecurring. AIG's net loss of $1.74 billion compares with a profit of $462 million in the year-earlier period.

AIG's shares fell 2.7% in after-hours trading.

Since arriving, Mr. Duperreault has shuffled the company's structure and top leadership, and hired numerous senior executives from brokerage and consulting firm Marsh & McLennan Cos., which he ran from 2008 to 2012, and other insurance companies.

He has pledged to halt the retrenchment that began when AIG accepted a U.S. government bailout in 2008 and needed to sell assets to repay taxpayers.

He scored an early victory in late September when U.S. officials voted to remove federal oversight of AIG as a "systemically important financial institution."

The removal of the label frees the company of tighter capital rules, federal approval for large mergers and placement of government examiners at the firm.

In Thursday's release, AIG said its consumer insurance operations delivered a strong profit, despite the catastrophe costs incurred in its business of selling home, car and other insurance to wealthy people. Its consumer businesses also include retirement-income products and life insurance. All together, these consumer businesses delivered $1 billion of pretax operating income.

Like Prudential Financial Inc. and some other insurers this quarter, AIG benefited from a rallying stock market, which increased assets under management in market-linked products.

The boost to AIG's reserves largely isn't covered under a reinsurance pact announced earlier this year with a unit of Warren Buffett's Berkshire Hathaway Inc.

In contrast to quarterly reports under Mr. Duperreault's predecessor, Peter Hancock, this one tallied just $275 million of share repurchases during the quarter. Mr. Hancock had prioritized such buybacks, and they totaled in the billions of dollars per quarter. AIG said it had closed on the sale of a remaining block of "life settlements," with $1.1 billion of cash proceeds to AIG.

Write to Leslie Scism at [e-mail]

(END) Dow Jones Newswires

November 03, 2017 02:47 ET (06:47 GMT)

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