AIG sees pricing increases continue outside of financial lines

American International Group Inc. said insurance prices continued to increase in many lines in the third quarter, particularly in its wholesale operations, but policyholders are seeing significant rate cuts in excess financial lines insurance.

The insurer reported significantly improved adjusted third-quarter results as it continued to restructure its operations through the sale of various units and by cutting a layer of management.

AIG’s North America commercial business reported average rate increases of 5.4%, said Peter Zaffino, chairman and CEO, on a call with analysts Thursday to discuss the insurer’s third-quarter results.

Wholesale property rates were up 28%, retail property rates were up 27%, and admitted excess casualty was up 12%, he said. Rates for financial lines coverage were down 8%, with the most significant decreases coming on excess placements. Several industry pricing surveys have shown directors and officers liability rates falling over the past year.

AIG reported net income of $2 billion in the third quarter, down 25.9% from the same period last year. The decline was related to the 2019 sale of Fortitude Re, which AIG sold on a co-insurance basis, and a lower ownership stake in Corebridge Financial, its life and retirement business, which it has been selling via stock market offerings over the past 14 months.

On an adjusted basis, net income for the quarter was $1.16 billion, 79.8% higher compared with the prior-year quarter, driven by improved underwriting results, including lower catastrophe losses, and high investment income.

AIG reported a combined ratio of 90.5% for the quarter, improving from 97.3% in the same quarter last year. Catastrophe losses for the quarter were $462, mainly related to the Lahaina Wildfire and Hurricane Idalia, down 29% from the prior-year period.

Investment income for the quarter totaled $3.56 billion, up 33.3% from the prior-year period.

Net premium written for its general insurance business edged up less than 1% to $6.46 billion, and North American commercial lines reported $2.54 billion in net written premium, a 7.7% decrease from the prior-year period. The figures reflected the sale of Validus Reinsurance Ltd., which AIG completed on Wednesday. On a comparable basis, general insurance net written premium increased 9%, and North America commercial increased 5%, AIG said in its earnings statement.

The insurer saw significant growth in its excess and surplus lines unit Lexington Insurance Co. where wholesale casualty premium rose 33% and property increasing 27%. The unit, though, cut back its program business, not renewing two large programs, which reduced its program business by 57%.

“We took this action because we believe that these programs had meaningful cat exposures in peak zones, and we did not believe the appropriate cat loads were reflected in the pricing,” Mr. Zaffino said.

In addition, financial lines premium in North America fell about 11%, he said.

Meanwhile, the ongoing sale of Corebridge will allow AIG to further simplify its operating model, Mr. Zaffino said.

The insurer will also continue to make structural changes, he said.

“We made recent leadership changes in general insurance, which have effectively eliminated a management layer from the business, and we will continue this process throughout the organization in 2024,” Mr. Zaffino said.