American International Group, Inc., AIG for short, announced their first estimate of the losses they will suffer from hurricane Sandy claims late on Friday. The insurer waited until after the stock markets had closed before making the announcement, perhaps a sensible move given the size of their first estimate. AIG’s preliminary estimate is for a pre-tax, net of reinsurance loss of approximately $2 billion, or $1.3 billion after tax.
AIG’s losses appear outsized given their market share within the northeast and mid-Atlantic region where Sandy came ashore. According to one estimate, AIG has about a 3% share across all lines in the region. So their loss seems particularly outsized when you consider that Travelers with between 8.5% and 9% market share announced a loss estimate half the size of AIG, at $650m after tax and reinsurance. Allstate also have more of the market but less of the losses it appears, with under 7% of the market share and a gross $1.075 billion loss after reinsurance.
AIG has significant commercial exposure with high-value companies, properties and industrial type facilities and also is known for taking on hard to price covers on excess and surplus lines of business. This will likely have left AIG with a larger amount of flood losses than many other insurers in the region. However, If AIG’s loss was spread across personal and commercial lines more evenly and accurately represented their 3% market share, it would point towards an industry loss much higher than most current estimates.
AIG said they are going to move $1 billion of readily available capital across to their U.S. property casualty insurance subsidiaries to support the claims process. The losses will be reflected in AIG’s fourth-quarter results but they note that due to the complexity of Sandy there can be no guarantee that the loss estimate won’t rise further.
There had always been some nervousness that insurers with more commercial exposure could take an outsized proportion of the losses and this seems to have been the case with AIG. This is also the reason that their have been some concerns about Chubb’s East Lane Re IV cat bond, which has seen mark-to-market losses as investors considered the fact that Chubb writes a lot of commercial business too.
Read our articles on other U.S. primary insurer loss estimates from Sandy: