American International Group Inc. saw higher profit margins in its core property-casualty unit and higher sales of some products, which were offset by volatile markets and severe winter weather, which harmed results in other areas.
AIG, one of the world’s largest insurers by premium volume, had some of its best underwriting performance in history, extending the company’s multiyear turnaround. The unit improved in a key profitability metric that calculates how much of each premium dollar is spent on claims and related costs. AIG kept those costs under 90 cents per share for the entire year, a long-held goal.
However, the insurance conglomerate’s net income fell 92%, owing primarily to a $3 billion gain on the sale of a real-estate portfolio in the previous quarter. This was related to AIG’s ongoing divestiture of its life and retirement income division.
The company reported a 24% drop in an adjusted measure of income, which Wall Street analysts closely monitor because it excludes nonrecurring items such as the sale of a real-estate portfolio. The company attributed a large portion of the decline in adjusted after-tax income to lower gains from a portion of its portfolio in alternative investments such as private-equity funds.
AIG’s net income fell to $264 million in the third quarter, down from $3.74 billion the previous year. Its adjusted after-tax income fell from $1.34 billion to $1.02 billion. The quarter included $235 million of catastrophe losses, notably from Winter Storm Elliott in late December, compared with $189 million of catastrophe losses in the prior-year quarter. Elliott pounded Buffalo, New York, as well as many other states.
Net investment income fell 8% year on year to $3.7 billion. Insurers hold the majority of their customers’ premiums in high-quality bonds until they need to pay claims. A small portion is frequently invested in private equity funds and other alternatives. As the Federal Reserve raised interest rates to combat inflation in 2022, insurers enjoyed higher yields on new bond purchases. However, private-equity results fell short of expectations for 2021.
Net premiums written for the General Insurance unit fell 6% year on year in the fourth quarter. AIG cited a drop in its Financial Lines business, which includes directors and officers insurance, as the reason for the decline. Premiums for such coverage fell across the industry last year as a result of fewer initial public offerings and special-purpose acquisition companies, or SPACs, amid volatile capital markets.
AIG is also a major seller of insurance to protect wealthy households’ homes and other valuables. It stated that its so-called Personal Insurance underwriting results had deteriorated, as a result of a business-mix shift aimed at reducing risk exposures.
AIG began notifying brokers in wildfire-prone California in 2021 that it will not renew the home policies of currently insured clients, totaling thousands of high-net-worth households, as part of changes to address catastrophe risk. AIG stated that some policyholders may be eligible for coverage through another AIG unit that has more rate and term flexibility than carriers operating in the state’s tightly regulated mainstream home-insurance market.
AIG’s life-and-retirement unit, which is being gradually divested, reported higher annuity sales in recent months, as have many other insurers. Stock and bond losses, combined with rising interest rates, have pushed risk-averse savers toward fixed-rate annuities, which are now offering decent yields for the first time in years.
Despite this, the unit’s adjusted pre-tax income fell 19% to $781 million. AIG attributed the decline to lower net investment income as well as lower fee income “due to challenging capital market conditions,” among other factors.