US behemoth AIG disappointed analysts in the second quarter as its North American insurance operation pushed the group to an underwriting loss and a $200mn restructuring charge weighed on the bottom line.
The group reported a $961mn profit for the period that was significantly shy of the $1.4bn gain it booked this time last year.
The $1.05 per share result also fell shy of the $1.21 that was expected by 18 analysts surveyed by financial news site MarketWatch.
It came as AIG’s general insurance unit fell to an underwriting loss with a 101 percent combined ratio that had swelled by 7.6 points compared to last year.
The insurance giant blamed a “high frequency of severe claims” for a $293mn bill that added 4.5 points to the loss ratio and is more than double the long term average.
AIG’s $3.24bn P&C business in its North American heartland was to blame for the underwriting loss after running a 104.4 percent, that marked a 2.4 point deterioration on last year.
While the group’s $2.32bn commercial lines business in the region actually saw its underwriting improve to report a 104.4 percent combined ratio that was down from 107.5 percent in the same quarter last year.
However, AIG’s smaller $915mn North American personal lines division saw a significant deterioration in its underwriting reporting a combined ratio that swelled to a loss-making 104.3 percent from the profitable 87.2 percent it clocked this time last year.
The swing to an underwriting loss in personal lines was in part driven by a $41mn reserve charge relating to last year’s catastrophe losses.
At a group level, that almost entirely offset $54mn of reserve releases in AIG’s North American commercial lines book.
Underwriting in the group’s $3.74bn international division also deteriorated with a combined ratio that swelled by 4.7 points to an almost break-even 99 percent.
That was driven by a significant increase in the international segment’s commercial lines division which saw its combined ratio balloon by 8.2 points to hit 104.5 percent in the second quarter.
The international division’s performance was not helped by a 1.6 point increase in the combined ratio for its personal lines book, which climbed to 94.3 percent driven by $133mn of severe losses and $43mn of catastrophe claims.
At a group level gross general insurance premiums increased by 4 percent to hit $8.65bn.
“We remain diligently focused on pursuing long-term, sustainable and profitable growth across AIG, and our diversified businesses provide flexibility and strength to execute on our strategy,” said AIG chief Brian Duperreault.
“In the second quarter, we continued to take actions across general insurance to establish a culture of underwriting excellence and added stellar talent,” he went on.
“Our efforts are taking hold and we remain committed to achieving an underwriting profit as we exit 2018.”
Commenting on AIG’s $5.6bn deal to buy Bermudian Validus, Duperreault said: “With the closing of the Validus acquisition in July, we have further enhanced our underwriting expertise and expanded our offerings.”
He also offered a further explanation of AIG’s decision to sell 19.9 percent of its newly-established $40bn legacy carrier DSA Re to Private equity giant The Carlyle Group, in a deal announced yesterday.
“We also took actions to efficiently manage our legacy liabilities with the partial sale of DSA Re, providing a path towards a standalone platform for managing run-off business,” he said.
“Moving forward, we will continue to look for opportunities to grow AIG and create long-term shareholder value,” he concluded.