Economic and social inflation are impacting casualty lines in the market, particularly financial lines, as American International Group Inc. moved forward with several divestitures to sharpen its focus on general insurance, said its chief executive officer.
The group closed on big divestitures including the sale of Validus Re as it progressed on the ongoing divestiture of its life and retirement business Corebridge Financial, said Chairman and CEO Peter Zaffino in a conference call.
AIG’s North American financial lines business revenue tumbled 11%, Zaffino said. Large-account public directors and officers business is competitive due to excess capacity from new market entrants, he said. The group also sees pressure particularly in its excess business.
Excess casualty has been affected by multiple mass tort events along with rising economic and social inflation, Zaffino said. The inflation has been fueled by rising third-party litigation, average severity trend increases and higher jury awards.
After five years of adjustments to underwriting, AIG’s global casualty portfolio represents 12% of total gross premiums written, Zaffino said.
AIG yesterday announced the closing of its sale of Validus Re to RenaissanceRe for $3.3 billion in cash and RenRe common stock, said Zaffino. The divestiture streamlines AIG’s business model, simplifies its portfolio and further reduces volatility, he said.
Zaffino said prior to closing on the Validus deal, AIG entered into an agreement with Enstar Group that gives AIG protection against any adverse development on the 95% portion of Validus Re’s loss reserves to which AIG retained exposure, he said. Enstar will provide $400 million of limit for an adverse development cover in excess of carried loss reserves on assumed reinsurance contracts written by Validus Re for 2022 and before.
September marked the one-year anniversary of Corebridge’s initial public offering. Zaffino said Corebridge has since returned about $1.4 billion to shareholders.
AIG continues to evaluate options regarding its remaining stake in Corebridge and is committed to cutting its ownership with an eventual full separation, he said.
AIG’s ownership of Corebridge has fallen to 65.6% from more than 90% a year ago, said Chief Financial Officer Sabra Purtill in the call.
In August, Corebridge agreed to sell Laya Healthcare to Axa SA, a deal that closed on Oct. 31, Zaffino said (BestWire, Nov. 1, 2023).
Proceeds to Corebridge will be about $730 million, he said.
In September, Corebridge agreed to sell its U.K. life insurance business to Aviva plc, a transaction AIG expects to close in the second quarter of 2024, he said.
Zaffino said both of these deals will streamline the Corebridge portfolio and allow it to focus on its life and retirement products and solutions in the United States.
Third-quarter net income attributable to shareholders fell to $2.02 billion from $2.74 billion in the same period a year earlier. General insurance gross premiums written fell to $8.87 billion from $9.24 billion. The general insurance combined ratio improved to 90.5 from 97.3.
Third-quarter 2023 catastrophe-related charges were $462 million, Zaffino said. This was down 29% from catastrophe-related charges of $655 million a year earlier, including losses from Hurricane Ian, AIG said in a statement.
This year’s third quarter included favorable prior-year development of $139 million, compared with $72 million a year ago, AIG said. This year’s PYD was mainly from favorable development in U.S. workers’ compensation, partly offset by unfavorable development in U.K. and European casualty and U.K. financial lines.
General insurance global commercial premiums rose 6% and global personal premiums grew 16%, Zaffino said.
In 2022, AIG decided to nonrenew two large programs in its Lexington unit, which AIG believed had meaningful catastrophe exposure in peak zones that the group didn’t believe was reflected in the pricing, Zaffino said. He noted the nonrenewals tempered Lexington’s overall growth with a net impact of $115 million in the third quarter.
Life and retirement adjusted pretax income rose 24% in the quarter as premiums and deposits grew 4% on strong fixed index annuities sales, Zaffino said.
Underwriting entities of American International Group Inc. have current Best’s Financial Strength Ratings of A (Excellent).