AIG’s P&C Business Is Fueling Its Huge Recovery

by Trefis Team
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AIG (NYSE:AIG) continued its remarkable turnaround from the crash in 2008, with a 28% year-on-year increase in after-tax operating income from its insurance operations. The property and casualty operations led the way with a 52% increase in operating income while the life and retirement division reported a 6% year-on-year increase in operating income.

P&C Operations

Almost 60% of the premiums earned by the P&C division came from the Americas. Although the company reported a 6% decline in premiums from the region, it continues to remain one of the biggest insurance companies in the U.S. AIG is the fifth largest insurer in the country in terms of direct premiums earned with a market share of 4.52%. [1] It is the largest insurer in the other liabilities line of insurance, ahead of The Travelers Companies, Inc. (NYSE:TRV), with a market share of 11.5%. This line of insurance accounts for more than 10% of the direct premiums earned by P&C insurers across the U.S. AIG is also the fourth largest insurance company in the workers’ compensation line of insurance. [2] This line of insurance also accounts for 10% of the P&C market in the U.S.

 

In Asia Pacific, AIG reported a 7% increase in net premiums written with a 16% increase from the commercial insurance sub-division and a 5% increase from the consumer subdivision. The commercial division provides insurance coverage like workers’ compensation and commercial automobile insurance to businesses while the consumer division offers personal automobile and homeowners’ insurance to individuals. We expect a high growth in premiums from Asia in the coming years.

The combined ratio or the ratio between expenses to premiums for the P&C division improved from 102.1% to 97.3%, indicating a negative cost of float used for investment. Catastrophe related losses were moderate around $41 million and the accident loss ratio improved from 66.3% to 63.2%. Like other insurers, AIG is resorting to price increments to gain underwriting profit to offset lower investment income from low interest rates. Our forecast for margins take investment income and combined ratio into account.

Life Operations In The U.S.

Although AIG has sold off its international life insurance operations like ALICO to MetLife (NYSE:MET) and Star Life Insurance Co., Ltd. and Edison Life Insurance Company to Prudential Financial (NYSE:PRU), it continues to offer life insurance and retirement solutions in the U.S.  AIG is currently the eleventh largest life insurer in the U.S. in terms of direct premiums with a market share close to 2%. [3] Premiums from the life operations were in line with the Q1 2012 levels while the operating income increased by 8%, helped a 12% increase in assets under management.

While companies like MetLife are exiting the variable annuities market, AIG continues to expand in the equity linked product. Variable annuity deposits increased by 31%. Variable annuities are a popular retirement solutions product in the U.S., accounting for 80% of the annuities market.  ((LIMRA)) AIG is the seventh largest seller of variable annuities in the U.S., with a market share of 5.4%.

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Notes:
  1. NAIC, Property and Casualty Insurance []
  2. Ref1 []
  3. NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS LIFE AND FRATERNAL INSURANCE INDUSTRY 2012 TOP 25 GROUPS AND COMPANIES BY COUNTRYWIDE PREMIUM []
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