AIG hit with substantial losses in second quarter
By Leslie Scism
Global insurance conglomerate American International Group Inc. swung to a loss for the second quarter driven in part by substantial costs tied to the pandemic as well as losses on the sale of most of its Fortitude Group Holdings LLC stake.
AIG, one of the nation's biggest sellers of property-casualty insurance to businesses, reported $674 million of catastrophe losses, before taxes, in its core General Insurance unit in the most recent quarter. That included $458 million of estimated pandemic-related losses and $126 million of losses tied to nationwide protests in the wake of the May death of George Floyd in the custody of Minneapolis police.
AIG also noted that its large Life and Retirement unit experienced a higher volume of death claims than usual, an increase tied to the pandemic.
AIG is the latest big insurer to update on the impact of Covid-19. Industrywide, claims are rolling in from a variety of policyholders. These include hospitals whose employees became infected and are collecting workers' compensation benefits; restaurants and other nonessential businesses seeking payments under "business-interruption" policy provisions, and sporting events that had cancellation coverage. Workers' compensation pays for medical care and wages of employees who are injured on the job.
Industrywide, property and casualty insurers are posting large, but not crippling losses, from Covid-19's unprecedented toll on the U.S. economy. Estimates put the industrywide total of insured claims tied to Covid-19 for property-casualty carriers at $50 billion to $100 billion.
At the low end, the damage would be equivalent to the nation's costliest hurricane, Katrina in 2005, with about $53 billion of insured damages in 2019 dollars, according to trade group Insurance Information Institute.
AIG said in the earnings release that "impacts from Covid-19 remain manageable." Chief Executive Officer Brian Duperreault said that the pandemic "remains an earnings, not a capital, event for AIG."
Overall, AIG swung to a second-quarter loss of $7.94 billion, or $9.15 a share, from a profit of $1.1 billion, or $1.24 a share, a year earlier. AIG completed the sale of a 76.6% stake in Fortitude on June 2, in a move that Mr. Duperreault said "de-risks our balance sheet," by reducing the company's exposure to long-term liabilities in products it no longer sells. This so-called runoff business exposed AIG to interest-rate risk over a large number of years, as premiums are invested and reinvested over time before liabilities come due, among other reasons for its divestiture.
On an adjusted basis, profit fell to 66 cents a share from $1.43 a share a year earlier. Analysts surveyed by FactSet expected 50 cents a share.
The New York-based insurer, which nearly collapsed during the 2008 financial crisis and needed one of the largest federal-government bailouts, has struggled to improve results over much of the past decade. AIG said in the earnings release that key commercial lines "continued to show strong improvement" in the second quarter, citing changes to the business mix and adequate premium rates.
AIG also is one of the nation's biggest sellers of travel insurance. Premium volume for the business line plummeted during the second quarter amid the government stay-at-home orders and travel restrictions.
At the same time, carriers also have benefited as the stay-at-home orders kept millions of consumers' cars parked in their driveways for weeks, reducing wreck claims. And eateries closed to dine-in service meant fewer slip-and-fall accidents.
Analysts are expected to pepper AIG executives about such Covid-19 developments at a Tuesday morning earnings call.
For the first quarter, AIG had estimated $272 million of pandemic-related losses, which drove an underwriting loss for its General Insurance unit.
Write to Leslie Scism at leslie.scism@wsj.com and Maria Armental at maria.armental@wsj.com