The New York company reported $281 million in profit, down 57% from $648 million a year earlier. Its so-called adjusted income, which is closely watched by Wall Street analysts because it excludes certain items judged nonrecurring, totaled $709 million, up 40% from $505 million.
The improvement in adjusted income came as the company booked estimated losses of $605 million, before taxes, to pay claims from windstorms in the Americas and Japan, and wildfires on the West Coast.
It also booked $185 million for claims related to Covid-19, the illness caused by the new coronavirus. Those are expected primarily for insurance the company sells to protect against travel and event cancellations, it said.
AIG said its General Insurance unit, which is one of the world’s biggest sellers of property-casualty insurance to businesses world-wide, continued to show improvement in terms of crucial profit metrics. AIG attributed the improvement to premium rate increases, and underwriting and reinsurance actions.
AIG Chief Executive Brian Duperreault called the third-quarter results solid as the insurer continues “our journey to become a top-performance company.” It has set a goal of delivering the bigger profit margins that some of its rivals typically post.
“The high frequency of natural catastrophes and Covid-19 had a limited impact on financial results,” Mr. Duperreault said.
In June, Carlyle Group Inc. and T&D Holdings Inc. completed the acquisition of a majority interest in Fortitude Group Holdings from AIG. An entity called Fortitude Re is the reinsurer of more than $30 billion of reserves for products that AIG no longer sells. That transaction complicated year-over-year comparisons for AIG this quarter and contributed to the year-over-year decline in its net income.
AIG’s third-quarter results follow an announcement less than two weeks ago that it plans to hive off its life-insurance business into a separate company, leaving AIG to focus on property-casualty insurance. The separation would take place under the direction of a new chief executive. It simultaneously said Mr. Duperreault would hand over his title on March 1 to Peter Zaffino, the company’s president.
AIG said adjusted pretax profit in its Life and Retirement business increased 51% to $975 million compared with the prior-year quarter, while the General Insurance unit, which also sells policies that protect the personal property of wealthy people, posted an 18% decline, to $416 million from $507 million, reflecting the higher catastrophe costs.
The separation of the life-and-retirement operations would be the latest significant change at a company that was one of the world’s biggest financial-services firms in the early 2000s, with wide-ranging operations.
During the global financial crisis of 2008, AIG nearly collapsed and survived after taking one of the U.S. government’s biggest bailouts. It roughly halved itself over the next four years as it raised money to fully repay taxpayers for the bailout, which reached nearly $185 billion at its peak.
As property-casualty and life insurers report third-quarter earnings, Wall Street analysts are still trying to get a grasp on the industrywide cost of Covid-19. Many insurers have exposure through workers’ compensation coverage sold to employers, making payments to people who are health-care workers or first responders, for instance.
AIG has said that it isn’t heavily exposed to such workers’ comp payments. But in addition to the Covid-19 cost it detailed for the quarter, AIG said the new coronavirus has cut into its revenue in various ways, including a decrease in sales of travel insurance amid the slump in air travel brought on by the pandemic.
The insurer also cited “unfavorable impacts from Covid-19 mortality” as an offsetting factor to strong improvement in earnings for its life-insurance business, without providing specifics in its news release.
Big insurers such as AIG say Covid-19-related costs are manageable, and some costs are coming in lower than initially feared. Life insurers’ Covid-19 death claims have been far below what was initially expected when the pandemic began spreading in the U.S., largely because the virus is disproportionately killing elderly people with little to no insurance.
Since the second quarter, many life insurers have sharply reduced estimates of their exposure, as measured by payouts per 100,000 U.S. Covid-19 fatalities. In its second-quarter earnings call, AIG estimated that 40% of its Covid-19 death claims reflected an acceleration of claims it would have otherwise experienced in the next five years.