AIG’s GI combined ratio improves globally, but worsens in North America

American International Group (AIG) reported much improved performance for its General Insurance division, which reported a combined ratio improvement and $845 million of net income despite elevated catastrophe losses due to US winter storm activity.

The General Insurance business of AIG has been a key focus for analysts in assessing the insurers performance improvement in recent years and the first-quarter of 2021 saw the company reporting much better underwriting results, with the combined ratio coming out at 98.8%, a 2.7 point improvement from the prior year quarter.

This is despite Q1 2021’s results including 7.3 points of catastrophe losses (up on Q1 2020’s 6.9%), after accounting for reinsurance recoveries.

Catastrophe losses to AIG’s GI business came out at $422 million, after reinsurance, which the company said was largely due to the US winter storms and freezing weather.

Adjusted, AIG’s General Insurance accident year combined ratio came out at 92.4% for Q1 2021, which represents a 3.1 point improvement from the previous year, driven by improved North America and International Commercial Lines underwriting results, the company said.

At the same time, AIG has gone for growth in Q1, with commercial insurance premiums rising 25% year-on-year, with growth in the North America and International units.

“AIG had an excellent start to the year and that is reflected in our first quarter results with growth in General Insurance and continued strong performance in Life and Retirement,” Peter Zaffino, AIG’s President and Chief Executive Officer commented.

“In General Insurance, we delivered strong growth in net premiums written, driven by our North America and International Commercial businesses, and underwriting profitability. The combined ratio was 98.8 inclusive of catastrophe losses and 92.4, as adjusted. The successful repositioning of our global portfolio over the last three years allowed us to pivot from remediation to profitable growth, which we expect to continue throughout the year.

“Life and Retirement delivered another solid quarter, with adjusted pre-tax income growth driven by diversified product offerings and increased investment returns. With strong sales and profitability, this business continues to be a market leader in the protection and retirement savings industry.

“Our strong balance sheet and financial flexibility allow us to continue to invest in growth and core operating fundamentals with capital returns to shareholders when appropriate. During the first quarter we repurchased $362 million of common stock and ended the quarter with $7.9 billion of liquidity.

“I am immensely proud of our global colleagues and what we have accomplished together. Our first quarter results reflect significant momentum as we continue our pursuit to become a top performing company.”

However, a deeper dive shows that while AIG’s underwriting was profitable on a global basis, the North American underwriting unit saw a combined ratio of 108.4%, which was worse than Q1 2020’s 103.8%.

Hence it was International business that drove the General Insurance profitability, as well as the investment return on the float generated, as North American underwriting was unprofitable across both commercial and personal lines for AIG in Q1.

It’s clear the winter storm losses hit AIG’s GI division hard in the United States, driving the degradation in underwriting result on a reported basis.