Lower Q4 catastrophe losses help reduce Q4 P&C combined ratio to 103.4% for AIG

American International Group Inc. reported Thursday a 5.3-point improvement in its fourth-quarter combined ratio and a 3% drop in net premiums written in property & casualty, while the combined ratio for the personal insurance sector dropped below 100.

New York City-based AIG reported a combined ratio in P&C of 103.4% in Q4 2014, down 5.3 points from 108.7% in the same period in 2013.

That improvement was “due to a lower loss ratio and a decrease in the general operating expense ratio,” AIG said in a release. “The loss ratio decreased 3.1 points to 75.0 in the fourth quarter of 2014, primarily due to lower catastrophe losses and lower discount expense for workers’ compensation reserves, partially offset by higher net adverse prior year loss reserve development compared to the prior-year quarter.”

In its financial results for 2014, AIG noted its new operating structure has two reportable segments: commercial insurance and consumer insurance, and a corporate and other category.

Prior to the fourth quarter of 2014, AIG reported its results through two reportable segments: P&C and life and retirement.

For its 2014 financials, commercial insurance includes P&C, mortgage guarantee, and institutional markets while consumer includes retirement, life and personal insurance.

AIG’s underwriting loss in P&C dropped from $460 million in Q4 2013 to $173 million in the most recent quarter. All figures are in United States dollars.

“Catastrophe losses were $35 million in the fourth quarter of 2014, compared to $188 million in the fourth quarter of 2013,” AIG noted. “Net unfavourable prior year loss reserve development, including return premiums, was $227 million, primarily attributable to Environmental and Financial lines businesses, compared to $48 million, net of additional premiums, for the fourth quarter of 2013. In the fourth quarter 2014, net reserve discount expense decreased by $93 million to $229 million, primarily due to the update to the discount rates used on workers’ compensation reserves, the annual updates of AIG’s exposure to workers’ compensation claims, including assumptions about payout patterns, medical inflation, and AIG’s efforts to contain claims costs.”

In personal insurance, AIG reported net premiums written dropped 3%, from $2.962 billion in Q4 2013 to $2.866 billion in the latest quarter.

The combined ratio improved from 104.3% in Q4 2013 to 98.7% in the three months ending Dec. 31.

AIG reported underwriting income in personal insurance of $39 million in the latest quarter, compared to an underwriting loss of $132 million in the same period in 2013.

Net income attributable to AIG was $655 million in Q4 2014, down 66.9% from $1.978 billion the last three months of 2013.

For the full year, net income attributable to AIG dropped 17.1%, from $9.085 billion in 2013 to $7.52 billion in 2014.