Coverage: The trouble is not over for insurer AIG

Swelling claims costs have forced AIG to pour an additional $840 million into its reserves, a sign of the persistent challenges facing the company despite hopes of a turnaround under recently appointed chief executive Brian Duperreault.

Alistair Gray of The Financial Times had the news:

Shares in the second-biggest US insurer by market capitalisation fell 3.6 per cent in after-hours trading after it posted third-quarter losses that were more than 50 per cent wider than expected.

The reserve charge further dented results already hit by a succession of costly hurricanes, pushing the insurer to a net loss — the fifth in 10 quarters, according to Bloomberg data — of $1.7bn.

Disasters including storms in Florida and Texas cost AIG $3bn, among the biggest bills in the insurance industry. Unlike several of its peers, the company got limited benefit from catastrophe reinsurance. Each storm cost it less than $1.5bn, the level at which its cover kicks in.

Leslie Scism of The Wall Street Journal reported that the reserve addition was a surprise:

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 were hoping the worst was behind.

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

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.

Nikhil Subba and Suzanne Barlyn of Reuters reported that AIG had another surprise reserve in the past year:

In February, AIG also posted a bigger-than-expected fourth-quarter loss, largely due to a $5.6 billion reserve charge to cover possible future claims related to long-term risks on U.S. commercial insurance policies it had already written.

AIG agreed in January to pay about $10 billion to a unit of Warren Buffett’s Berkshire Hathaway Inc to take on the bulk of the risk associated with those policies. The Berkshire deal followed a $3.6 billion increase to reserves chalked up by AIG in the last quarter of 2015.

Chief Executive Officer Brian Duperreault, widely hailed in the industry as a turnaround expert, took charge of AIG in May. He replaced Peter Hancock, who said in March that he would step down after the insurer’s financial performance frustrated shareholders and the insurer’s board of directors.

AIG conducts quarterly reviews of reserves for its various lines.