Yahoo Finance AIG’s Commercial Insurance Fell on Lower Alternative Income
Alternative Investments Impact AIG Earnings, Core Getting Stable
Commercial Insurance
American International Group (AIG) reported a pre-tax operating loss of $889 million for its Commercial Insurance business in 1Q16 as compared to a pre-tax operating income of $1.5 billion in 1Q15. The decline was mainly due to lower premiums, investment income, and higher catastrophe losses.
During 1Q16, AIG saw a steep decline in Institutional Markets and Property and Casualty, partially offset by an increase in Mortgage Guaranty. AIG entered into a two-year reinsurance arrangement with the Swiss Re Group, under which a proportional share of new and renewal US Casualty portfolio is being ceded. The arrangement will reduce the impact of the US Casualty loss ratio on the company’s overall loss ratio, in accordance with its strategic plan.
AIG grew its book value per share by ~13% during the past year. In comparison, its per-share book value growth was ~5% for Metlife (MET) and Allstate (ALL), and it was ~8% for Chubb (CB) in the same period.
Investors can gain broad exposure to insurance companies by investing in financial sector ETFs such as the Vanguard Dividend Appreciation ETF (VIG).
Property and Casualty
AIG reported a pre-tax operating income of $720 million for its Property and Casualty holdings due to lower net investment income. Its combined ratio rose 96.9 points to 97.1 in 1Q16. Its loss ratio rose 0.1 points to 68.2 due to higher catastrophe losses.
The combined ratio is calculated as the total underwriting expenses of a property and casualty insurer as a percentage of premiums received. A combined ratio of below 100% implies an underwriting profit, and a ratio of above 100% implies a loss.
Mortgage Guaranty
AIG’s Mortgage Guaranty division reported a 12% rise to $163 million in pre-tax operating income due to higher underwriting income and a rise in investment income. The general operating expense ratio decreased, primarily due to lower employee costs.
The acquisition ratio benefited from lower expenses related to sales activities supporting new insurance written. The company saw a decline in incurred losses from lower delinquency rates and higher cure rates.
Institutional Markets
The Institutional Markets division’s pre-tax operating income fell to $6 million in 1Q16 compared with $147 million in 1Q15. This was mainly due to lower net investment income that was driven by the negative performances of alternative investments in hedge funds, partially offset by growth in average base invested assets.
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