AIG posts US$2.5 billion in net income for 2015 Q1

American International Group, Inc. (AIG) today reported net income attributable to AIG of $2.5 billion for 2015 Q1, up substantially from US$1.6 billion for the same quarter in 2014.

“Operating results in the first quarter of 2015 reflected improved underwriting results in Commercial Insurance, lower alternative investment returns compared to the strong level a year ago, as well as the continued effect of the low interest rate environment on net investment income,” notes a statement Friday from AIG, a global insurance organization serving customers in more than 100 countries and jurisdictions.

“Net income included net realized capital gains of $874 million, net of tax, which included gains totaling $565 million, net of tax, associated with the sale of two large shareholdings,” AIG reports in the statement.

After-tax operating income was US$1.691 million for the quarter ended March 31, 2015, down 3% from US$1,741 million in the first quarter of 2014. This reflected an unfavourable year-over-year impact from changes in the discount on workers’ compensation reserves, the statement adds.

The after-tax operating income for Insurance Operations, is broken down by line. For Commercial Insurance – which, in total, was US$1,462 million in 2015 Q1 compared to US$1,421 million in 2014 Q1 – AIG reports the following results:

• Property Casualty was up 5% to US$1,170 million in 2015 Q1 compared to US$1,116 million in 2014 Q1 (“Property Casualty’s increase in pre-tax operating income is attributable to an increase in underwriting income, partially offset by lower net investment income.”);

• Mortgage Guaranty was up 91% to US$145 million compared to US$76 million; and

• Institutional Markets was down 36% to US$147 million from US$229 million.

The increase in pre-tax operating income was “primarily due to improved underwriting results from Property Casualty and Mortgage Guaranty, partially offset by lower net investment income from Property Casualty and Institutional Markets,” notes the AIG statement.

For Consumer Insurance – which was US$945 million in 2015 Q1 compared to US$1,168 million in 2014 Q1 – AIG reports the following results:

• Retirement was down 13% to US$800 million in 2015 Q1 from US$915 million in 2014 Q1;

• Life was down 27% to US$171 million from US$235 million; and

• Personal Insurance was a loss of US$26 million compared to US$18 million (primarily due to lower net investment income);

Looking specifically at Property Casualty, AIG notes net premiums written (NPW) was US$5,047 in 2015 Q1, up 1% from US$5,006 in 2014 Q1; net premiums earned (NPE) was US$4,931 million, down 2% from US5,052 million; and underwriting income was up 159% to US$145 million compared to US$56 million.

“Excluding the effects of foreign exchange, net premiums written increased 6% compared to the prior-year quarter. This increase was primarily driven by new business growth in Financial lines and Property, as well as a renewal of a multi-year multinational policy in Financial lines which contributed approximately 40% of the growth,” the statement explains. [click image below to enlarge]

“These increases were partially offset by the decreases in U.S. Casualty, reflecting rate pressure and the effect on renewals from continued discipline in certain classes of business in Specialty,” AIG adds.

Property Casualty’s combined ratio improved to 97.1 from 98.9 when comparing the first quarters of 2015 and 2014. The improvement may have been helped by lower catastrophe-related losses (US$71 million in 2015 Q1 compared to US$184 million in 2014 Q1) and lower severe losses – US$134 million compared to US$145 million.

In addition, “the first quarter 2015 accident year loss ratio, as adjusted, decreased 0.8 points to 64.4, primarily due to enhanced risk selection and pricing discipline in Specialty and Financial lines, particularly in the United States, and lower attritional losses in U.S. Property,” the statement notes.

“The general operating expense ratio decreased slightly to 12.8, primarily due to efficiencies from organizational realignment initiatives, offset by investments in technology, engineering and analytics,” AIG adds.

“Our first quarter results showed progress on our financial objectives, and our commitment to balance sheet management,” Peter D. Hancock, AIG president and chief executive officer, says in the statement.

“We continued to proactively manage our capital resources through both common stock and debt repurchases. We further optimized our funding profile by replacing high-cost legacy debt with new issuances at lower yields. These actions reflect our improved risk profile, and combined with continued insurance company distributions, have contributed to the board’s approval of an additional $3.5 billion share buyback authorization,” Hancock reports.