Excess property insurance buyers should expect higher deductibles and related tightening of terms this year, American International Group Inc.’s top executive said Thursday.
On a conference call with analysts to discuss the insurer’s fourth-quarter 2022 results, chairman and CEO Peter Zaffino said: “In excess and surplus lines in real estate, I expect to see higher deductibles, more windfalls, tighter terms.”
Looking back at the fourth quarter, Zaffino said AIG saw an average increase of 3% in its North American commercial business, but average rates rose 9% excluding financial lines and workers’ compensation.
Retail real estate prices rose 15%, its E&S unit Lexington saw prices rise 1
2% and the number of accidents rose 9%, he said.International commercial rates rose 4%, driven by Asia Pacific, where rates rose 9%, and Europe, the Middle East and Africa, where rates rose 7%.
“While we experienced downward pressure on the rate in some lines at the beginning of the fourth quarter, we saw a re-acceleration of price increases towards the end of the quarter,” Zaffino said. For example, the retail real estate renewal rate rose 24% in December as the impact of recent catastrophe losses was felt by the market, he said.
AIG has rewritten much of its book over the past five years, allowing it to buy more reinsurance coverage at moderate rate increases during year-end renewals, despite significant rate increases in the overall reinsurance market, Zaffino said. .
AIG bought more property catastrophe reinsurance, hedging $6 billion in limits and improving terms, he said. AIG’s total reinsurance costs increased by less than 10%, he said.
For the fourth quarter, AIG reported net income of $264 million, compared with $3.74 billion in the prior-year period, which included a $3 billion gain from the sale of a real estate portfolio. Profit was also hit by a decline in net realized gains from derivatives operations, AIG’s earnings statement said.
On an adjusted basis, AIG’s pretax profit fell 19.7% to $1.2 billion. The insurer attributed the decline to a $489 million drop in alternative investment income, largely from private equity investments, which was partially offset by better underwriting results.
Its non-life insurance business saw net premium income of $5.61 billion, down 6%, largely driven by a decline in personal services premium and the impact of currency changes on international business.
Its North America commercial business reported $2.27 billion in net premium income, up 3% year over year.
AIG’s total insurance share was 89.9% for the quarter, an improvement from 92.4% in the prior year. North America Commercial Lines reported a total expense ratio of 84.4%, an improvement from 94.8% in the 2021 period.
For the full year, AIG reported net income of $10.25 billion, up 9.5% from 2021.
In the fourth quarter, AIG completed the IPO of its life and pension business Corebridge Financial Inc. AIG expects to complete a secondary offering of Corebridge shares by the end of the first quarter, Zaffino said.
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