American International Group Inc. is looking at the quality of its commercial property/casualty insurance clients and risks with increasing amounts of analytics to ensure proper rate segmentation as the insurer focuses on its underwriting results, said AIG President and Chief Executive Office Robert Benmosche."It isn't just following the market anymore," Benmosche said. "We're becoming much more scientific in where in our client base or brokerage-brought business do we want to begin to add rate, and that would be independent of what is actually happening in the market. So it's not just the old, everybody is up and down by the tide."
AIG is also evaluating the business that comes from insurance brokers, Benmosche said. "Some of them are taking a shot in the dark and hoping somebody at AIG will write it, versus somebody who really prides their business with AIG and tends to bring us very good risks and very well field underwritten," he said.
Benmosche made his comments during a conference call with investors to discuss AIG's third-quarter financial results. AIG saw its net income rise about 16% over the prior-year period to $2.2 billion as the property/casualty, and life and retirement units reported stronger pretax operating incomes.
Peter Hancock, CEO of AIG Property Casualty, said the commercial lines business improved in the quarter as the unit reshapes its portfolio across products and geographies. The commercial segment saw its third-quarter underwriting loss shrink to $8 million, from $317 million, the company said in a written statement. Commercial lines saw modest rate increases in the quarter, coming in globally at 3.4%, and a 5.5% average rate bump in North America.
AIG's consumer markets segment should see an improving expense picture going forward as the company is making a merger integration effort between Fuji Fire and Marine Co. and AIU Insurance Co., Hancock said, while adding that's the largest consumer operation AIG has. The consumer market segment is also building its operations in emerging countries, Hancock said. AIG is focusing on three major countries it has been investing "quite heavily" in over the past year, but Hancock did not say which ones.
"We have taken a little longer than expected to build the platform we wanted and get the sales kicked off at the rate that we'd like," Hancock said. "We have still a high degree of confidence that those platforms will perform fairly promptly," he said, despite a "slightly delayed start-up."
Despite what Hancock called short-term profitability issues in the extended warranty portion of the consumer markets segment, he said the company is seeing growth momentum in that space. The profitability issues stem from one warranty program that Hancock said had to do with mobile phones. Assurant Inc., which also has mobile phone insurance programs, said recently it saw in the quarter a substantially higher claim frequency and severity on certain models of smartphones.
The company's life and retirement segment saw strong sales momentum in the third quarter, achieving the highest level of sales in the unit's history, said Jay Wintrob, president and CEO of AIG Life and Retirement. Product design, favorable market conditions and the unit's distribution strategy contributed to a 118% increase in retail premiums and deposits compared to the same period a year ago, he said.
Wintrob said the third quarter saw a significant increase in fixed annuity sales. He said the company continues to target pricing for fixed annuities, which is strong considering the current environment. Benmosche said he sees long-term opportunity in AIG's life and retirement businesses, especially in the United States and China where age demographics will be shifting over the next few decades.
"A startling number that just keeps hitting me is that over the next 35 years, there will be four times the number of people over 65 than there are today," Benmosche said. "So forget about percentages and numbers and all the other stuff --- that is four times the number of people in that age category and that is the area where we do a lot of business where we deal with protection and life and other products."
AIG's $5.28 billion sale of its International Lease Finance Corp. could still happen, Benmosche said. The company continues to work with the same consortium of investors to conclude the sale, but Benmosche said that group might be moving too slowly and AIG might have to proceed with an initial public offering of the unit.
There is some urgency attached to the disposing of ILFC because of the way AIG is carrying it on its financial balance sheet, Benmosche said. The company hopes to make a decision on either path in the fourth quarter, Benmosche said, while adding there is optimism the sale could close as is.
AIG also announced some executive promotions. Monika M. Machon has been named AIG treasurer, effective immediately, reporting to David L. Herzog, AIG's chief financial officer. Machon succeeds AIG Executive Vice President Brian T. Schreiber, who was named AIG's deputy chief investment officer, along with Geoffrey N. Cornell, who will also carry that title. Both Schreiber and Cornell will report to William N. Dooley, AIG's executive vice president of investments.
Rated AIG companies currently have a Best's Financial Strength Rating of A (Excellent). During late morning trading on Nov. 1., shares of American International Group, Inc. were trading at $48.20, down 6.68% from the previous close.