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AIG expects more rate hikes across property and liability lines



Pricing for commercial insurance is likely to rise further at the turn of the year, senior executives at American International Group Inc. said Wednesday while discussing the insurer’s third-quarter results.

Property insurance will lead the increases, but some liability lines will also see rate increases, they said.

AIG reported a higher profit for the third quarter despite significant losses from Hurricane Ian and worsening losses over the past year from its financial operations.

AIG reported third-quarter net income of $2.7 billion, up 62.8% over the same period last year. Net investment income fell 28.2% to $2.67 billion.

The insurer reported $600 million in catastrophe losses for the third quarter, including $450 million related to Hurricane Ian. Of the Ian losses, $1

25 million came from AIG Re, said Peter Zaffino, chairman and CEO. AIG has lowered its assumed reinsurance limits in Florida by about 60% since 2018 as part of its underwriting overhaul that followed the appointment of a new management team.

Insurance rates continued to rise in the third quarter, and AIG’s commercial business in North America grew an average of 9%, excluding workers’ compensation, Zaffino said. Workers comp is one of the few commercial lines of insurance that has seen no significant rate increases in the past four years.

Areas in Commercial North America that continued to see double-digit increases include Lexington, its excess business, which was up 20%, cyber liability up 32% and excess claims up 12%. International prices rose 6% on average, Zaffino said.

Ahead of the renewals, Zaffino said rate hikes will be led by the property insurance sector, but casualty will also be affected as insurers and reinsurers make decisions about how to use their capital.

Total loss costs have accelerated since AIG reported a 6% increase at the end of the second quarter, he said.

“Due to inflationary factors and other related factors that have resulted in an increase in property loss costs, we are increasing our overall loss cost trend to 6.5% both in North America and internationally,” Zaffino said.

In the third quarter, AIG also posted $72 million in favorable loss performance last year. In North America, almost all industries were favorable, expecting financial lines, which were unfavorable by $660 million, primarily due to losses in 2018 and 2019 on its excess liability for directors and officers, Zaffino said.

Prior to its insurance restructuring project, AIG wrote significant vertical restrictions on individual D&O programs. Since then, it has reduced its exposure to individual policyholders, he said.

In addition, before 2018, AIG wrote multi-year policies that affected its losses in 2019 and 2020, said Shane Fitzsimons, chief financial officer.

“We have strategically moved away from this business,” he said. In addition, since 2018, AIG has reduced its US primary financial item limits by $32 billion on a comparable basis, or nearly 80%. Primary limits for corporate and national D&O have dropped by 50% and private D&O limits have dropped by nearly 85%, he said.

“And in any case, prices are increasing significantly over this time period since 2018,” Fitzsimons said.

Gross written premiums in AIG’s non-life insurance business fell less than 1% in the third quarter to $9.24 billion, and net written premiums declined 2.8% to $6.4 billion. Excluding currency effects, the net premium increased by 3% compared to the previous year.

North America Commercial Lines reported $2.76 billion in net premium income, up 7% over the same period last year. International commercial lines reported $1.99 billion in the quarter, down 3.8%.

Financial lines’ premium growth in the third quarter was also negatively impacted by stock market conditions, which saw a decline in IPOs and special purpose vehicle acquisitions, or SPACs, said General Insurance CEO David McElroy.

AIG’s total expense ratio for its non-life insurance business improved to 97.3% in the third quarter compared to 99.7% in the same period last year. Its North American commercial lines combined ratio for the third quarter improved to 113.6%, compared to 120% in the 2021 period, and its international commercial lines combined ratio improved to 75.4% compared to 104.8% last year.

During the quarter, AIG also completed the IPO of its life and retirement business, raising $1.7 billion.


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