American International Group Inc. cut back on unprofitable lines of business and bought more reinsurance protection during the fourth quarter last year as the new management team continued its efforts to turn the insurer around.
Discussing AIG’s fourth-quarter results in a conference call with analysts on Friday, including a $6.66 billion loss compared with a $3 billion loss in the same period in 2016, largely due to a one-off charge related to the recent tax reform law, Brian Duperreault, president and CEO of AIG, was upbeat about the insurer’s prospects.
“I feel confident that we have a good handle on where the issues are line by line, country by country … we’ve got the structure, we’ve got the understanding. Now we’ve just got to execute,” he said.
Since his return last May to AIG, where he spent the first two decades of his career, Mr. Duperreault has undertaken a review of the insurer’s business and recruited a significant number of senior executives to manage it.
Excluding the charge for the tax law’s effect, adjusted after-tax income was $526 million for the 2017 fourth quarter, compared with an adjusted after-tax loss of $2.8 billion in the 2016 fourth quarter. For the full year, AIG reported a loss of $6.08 billion, compared with a loss of $849 million in 2016. On an adjusted basis, it reported a loss of $232 million, compared with a $2.4 billion loss in 2016.
AIG reported $762 million in catastrophe losses for the quarter, including $572 million related to the California wildfires.
Its general insurance unit, which includes its commercial and personal lines property/casualty business, reported an adjusted profit of $13 million in the quarter, compared with an adjusted loss of $4.8 billion in the prior year quarter.
Reviewing the property/casualty unit’s operations over the quarter on the conference call, Peter Zaffino, CEO of general insurance, said: “Cat losses significantly impacted our 2017 performance; however, going forward you can expect us to more thoughtfully manage frequency and severity of cat exposure through our reinsurance strategy and the management of our gross exposures,” he said.
At the Jan. 1, 2018, reinsurance renewals, “we began executing on our strategy by reducing severity and frequency exposures on our North American cat and net retention on our property per risk and also obtained a new catastrophe cover for international cat,” Mr. Zaffino said.
The additional reinsurance, taking into account the announced acquisition of reinsurer Validus Holdings Ltd., will reduce AIG’s probable maximum loss exposure by 20%, he said.
The changes to the reinsurance program included changing the limits it bought from occurrence, which responds to individual events, with no reinstatement to a mix of occurrence coverage and annual aggregate coverage, which responds to multiple losses over a year, with one reinstatement.
In light of its reinsurance strategy and actions to manage the overall portfolio, AIG expects premium volume to be flat in 2018.