AIG is aiming to get its general insurance combined ratio below 100 percent by the end of 2018 despite expectations that its North American business will post another underwriting loss this year.
Speaking on the firm’s Q1 earnings call today (3 May), CEO Brian Duperreault said the aim to improve the combined ratio into a top quartile result would rely on further underwriting gains in the international business, which remains profitable, and alleviating the losses in North America.
And responding to an analyst question which highlighted investor concerns about the firm’s ability to hit RoE targets in the medium term, Duperreault underlined the importance of improving the expense ratio as a key driver of pushing underwriting back into the black.
“We want to be top quartile in terms of combined ratios, and that includes expenses,” he said.
“We want to be top quartile on our expense levels, we should be the most efficient and we are big enough to take advantage of our scale, so we should be much, much better in terms of our expenses. And we are going to get there.”
General Insurance chief Peter Zaffino also highlighted AIG’s efforts to improve the performance of the North American business, which reported a loss ratio of 80 percent in the first quarter and a steep drop in underwriting income year-on-year to $320mn.
Asked if further remediation efforts where required, he said: “In terms of North America we are not done. I think we have made some very good improvements in how we are looking at gross and net lines, looking at businesses where we have a real leadership position and can differentiate ourselves in the marketplace, and that has really just begun.”
“So I expect us to be improving every quarter this year and next year as we reposition the portfolio, looking at excess casualty and financial lines.”
“We have made progress, we are going to make more progress, and this is going to be a process throughout the calendar year.”
Duperreault added that the firm had experienced high losses in its casualty business in the geography, primarily in the excess lines, but said that there had been stability in the reserving levels and some redundancies.
Pushed on whether the firm’s plans to remediate some parts of the business could be thwarted by an unforgiving market environment, Duperreault argued that the conditions were not particularly holding the process back.
“I think generally speaking there is probably more of a tailwind than headwind, it may not be as strong as one would like in certain lines of business, but it’s actually more positive than [the question suggested],” he said.
“I do think the industry needs to continue to improve and the rates are required, but it’s not like we are going against the movements.”