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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 (February 14, 2020).
Global insurance conglomerate American International Group Inc. swung to a fourth-quarter profit, the latest big insurer to post improved results due to lower catastrophe claims.
The insurer is gaining ground in a multiyear turnaround effort to overhaul its commercial property-casualty insurance business. For the fourth straight quarter, this core unit turned a profit and showed other operational improvement. The New York company posted overall quarterly net profit of $922 million, reversing a year-earlier loss of $622 million.
AIG's management has faced challenges to improve results since the 2008 financial crisis, when it nearly collapsed into bankruptcy-court protection and needed one of the biggest federal-government bailouts. To fully repay taxpayers, AIG divested a crown jewel Asian life-insurance unit and many other businesses to roughly halve itself by assets.
The company's most-recent quarter included Texas tornadoes, California wildfires and Typhoon Hagibis in Japan, but catastrophe costs still fell far short of the year-earlier tally. In 2018, Hurricane Michael flattened the area near Mexico Beach, Fla., and California blazes caused historic devastation.
The most-recent results benefited from the extensive use of reinsurance, under which other insurers are under contract to share some costs, the insurer said. Net of this reinsurance, AIG's catastrophe claims tallied $411 million in the quarter, down from $826 million in the year-earlier period.
Shares of AIG, which reported the results before the start of trading Thursday, were down 2.6% in early afternoon trading despite a strong quarter.
AIG executives made some cautionary comments about future results during the morning's earnings call that caused some analysts to be less bullish about future results.
AIG discussed the negative impact of sustained, ultralow U.S. interest rates on some life-insurance products and potentially higher-than-expected costs for lawsuits and jury awards from so-called social inflation in casualty claims against business policyholders.
Chief Executive Brian Duperreault, who took the job in May 2017, has hired dozens of experienced executives and underwriters from across the industry. His team has toughened underwriting standards, reduced policy sizes by tens of billions of dollars in the aggregate, sliced overall expenses, added reinsurance coverage to make results less volatile, and acquired two property-casualty insurers. He said his team is focused on positioning AIG as a top-performing company. Since the crisis, its performance, as measured by various common financial metrics, has lagged behind some large insurance rivals.
In a conference call with analysts Thursday, Mr. Duperreault said the results "reflect the significant progress we made over the course of 2019...to position AIG for long-term sustainable profitable growth."
In an indication of confidence that its property-casualty business is in good shape, AIG shrank its $80 billion of gross property-casualty reserves by $153 million in the quarter. In the year-earlier period, it had bolstered them with a net $365 million charge to reflect newly determined shortfalls.
AIG executives noted in the earnings call that after years of flat or declining rates, rising prices for property and liability policies sold to businesses helped the quarter's financial results. Premium rates rose throughout the year with acceleration during the fourth quarter, President Peter Zaffino said. He dubbed it "the strongest quarter of rate improvement that we've seen over the last decade," with percentage increases running in the double digits in many instances.
Still, AIG's gross premiums written -- an industry term for the volume of insurance sold -- declined 5% in the core unit, to $7.31 billion for the quarter. Mr. Duperreault said some of the decline stemmed from the shrinkage of policy sizes to reduce volatility. "We have not been concentrating on the top line because we had to concentrate on the bottom line," he said. Once the portfolio is "rock solid," he said, "then you grow it."
AIG's closely watched adjusted after-tax income, which excludes items judged nonrecurring, tallied $919 million, or $1.03 a share. In the year-earlier period, it posted a loss of $559 million, or 63 cents a share. Analysts were expecting about $1 a share.
Beyond the turnaround in its core property-casualty unit, AIG's Life and Retirement unit posted pretax profit of $839 million, compared with $623 million in the prior-year quarter. The unit sells life insurance, annuities and products for institutional buyers. The earnings improvement came even as premiums and deposits fell 14% to $7.1 billion primarily due to lower sales of fixed annuities to individuals.
AIG's total net investment income was $3.6 billion in the fourth quarter, compared with $2.8 billion in the year-earlier period. Then, AIG cited net losses on alternative investments and equity securities, among other developments, in what was a rocky quarter for stocks and volatile credit markets.
While AIG is mostly invested in high-quality bonds, the company and other large insurers typically invest a slice of their investment portfolios in hedge funds and private-equity funds.
Write to Leslie Scism at email@example.com
(END) Dow Jones Newswires
February 14, 2020 02:47 ET (07:47 GMT)
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