AIG profits dropped in the first quarter of 2018. Insurance defense law firms that are on the AIG panel will want to stay alert to the global carrier’s operating results, since the firm remains under pressure to improve performance.
The property-casualty insurance unit at AIG suffered losses most recently as a result of the California mudslides, U.S. winter storms, and a New Guinea earthquake. The past continues to haunt the P&C unit, however, as liability coverage that was written following government intervention during the 2008 financial crisis resulted in higher than expected losses due to under-pricing of the original policies.
AIG’s expense ratio is higher than Wall Street wants to see, especially when compared to competitors in the insurance sector. This is putting cost-cutting pressure on the AIG management team under CEO Brian Duperreault as it strives to achieve higher profit margins.
AIG is taking a number of actions this year to realign operating units and strengthen financial results. As we wrote in a February post titled, “AIG to Acquire Validus,” AIG is acquiring Validus in a $5.56 billion transaction. AIG anticipates benefits from an expanded reinsurance platform, a significant presence in the Lloyd’s market, as well as market share in the U.S. crop and excess and surplus (E&S) markets.
Western World is a Validus unit that is probably of greatest interest to insurance defense law firms that are following AIG panel news. It is too early to tell what all of this means to the AIG panel counsel program, if anything.
In another 2018 strategic move, AIG announced the formation of DSA Reinsurance Co. Ltd., a Bermuda domiciled composite reinsurer, in February. DSA is part of an effort to separate general insurance run-off, life and retirement run-off, and other legacy investments in one consolidated business unit.
A new Chief Claims Officer at AIG, announced in April, will be responsible for “the strategic direction of general insurance claims, encompassing governance and policy, settlement authorities, claims handling and global best practices.” What this means for day-to-day claims operations and AIG panel counsel members also is unclear.
The general insurance segment includes personal and commercial lines in North America. More specifically, general insurance includes but is not limited to general liability, commercial automobile liability, environmental, workers’ compensation, excess casualty and crisis management coverages, errors and omissions (E&O), and products liability.
AIG operates from approximately 160 offices in the U.S and 380 offices in 60 foreign countries. The insurer’s employee count was 49,800 as of December 31, 2017 compared to 56,400 as of year-end 2016, reflecting a decline of 6,600 employees or 11.7 percent of the 2016 workforce.
In 2017, 6.5 percent of AIG’s P&C direct premiums were written in California, while 18.7 percent and 7.7 percent were written in Japan and the United Kingdom, respectively. No other U.S. state or foreign country accounted for more than five percent of AIG’s property casualty direct premiums.
AIG reported net charges of $1.0 billion, $5.4 billion and $3.3 billion, respectively, in 2017, 2016 and 2015, to shore up general insurance loss reserves. These charges resulted primarily from losses in the casualty and financial lines of the general insurance unit.
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