2025 property insurance rates depends on hurricane season, AIG exec says

By John Hilton

The next two months will go a long way in determining the near-term impact of extreme weather events on commercial insurance markets, a top insurance executive said this week.

Catastrophic losses are making insurers swallow hard before offering policies in coastal areas like California, Florida and Louisiana. American International Group is among the insurers that stopped offering homeowner's coverage on an admitted basis in California.

As hurricane season unfolds, AIG Chairman and CEO Peter Zaffino spoke Wednesday at the 2024 Keefe, Bruyette & Woods Insurance Conference.

"I can't remember a year ... where the cost of property insurance, and maybe even reinsurance, would be highly dependent on what happens this year," Zaffino said. "The next 60 days are going to be very telling for 2025."

Zaffino recalled forecasts and predictions made earlier this year.

The National Oceanic and Atmospheric Administration predicts "above-normal hurricane activity" in the Atlantic basin. NOAA’s outlook for the 2024 Atlantic hurricane season, which ends Nov. 30, predicts an 85% chance of an above-normal season, a 10% chance of a near-normal season and a 5% chance of a below-normal season.

Hurricane season is expected to have above-normal activity due to a confluence of factors, NOAA said, including near-record warm ocean temperatures in the Atlantic Ocean, development of La Nina conditions in the Pacific, reduced Atlantic trade winds and less wind shear, "all of which tend to favor tropical storm formation."

Disciplined insurance strategy

Zaffino joined AIG in 2017 and took over as CEO on March 1, 2021. Under his watch, the insurer restructured business operations and adhered to a disciplined strategy. That extends to its ratio of CAT losses, Zaffino said, which stood at 16% in 2017 and is down to 3.8% this year.

"We believe our story is meaningfully different," he said on the industry struggles with extreme weather losses.

In its recent second-quarter report, AIG took overall catastrophe losses of $325 million with convective storms in the U.S. accounting for most of $156 million in North American CAT losses. About $169 million in CAT losses were booked internationally.

Zaffino engaged in casual conversation with Meyer Shields, managing director of KBW, during one of what the investment banking firm calls its "fireside chat."

AIG fully separated its life and retirement business, now known as Corebridge Financial, this year and sold off several other business lines as well. In 2023, AIG sold Crop Risk Services and Validus Re. In June, Zurich Insurance Group acquired AIG's global personal travel insurance and assistance business for $600 million.

"I think we're largely done," Zaffino said of the divestitures. "With travel, it's no different than crop. Those businesses need scale. ... The travel business is low premium, high policy count and you can’t be in between."

Staffing cuts to come?

Generative artificial intelligence is going to help AIG grow, a point Zaffino mentioned several times. The insurer's pilot testing of AI in underwriting has been "unbelievably successful," the CEO said, taking large amounts of data and getting it to the underwriters in a substantially shorter timeframe.

The result can cut underwriting time "in some cases from weeks to hours," Zaffino said. It will also add to AIG's efficiency push, he added. Zaffino has consistently pushed for technology to aid underwriters. Here is his message in the annual AIG shareholder letter:

"We are making investments in the implementation of large language models and artificial intelligence to complement our underwriters in providing deeper insights and improve decision-making, enabling us to create a better and differentiated experience for our clients and partners. We are using technology to respond to a greater number of submissions, faster, in markets of particular potential and launching new products that reflect how we thoughtfully listen to clients and distribution partners.”

In recent earnings calls, Zaffino hinted at staffing cuts as part of AIG Next, a program designed to find $500 million in annual savings.

"Yes, we will eliminate," he told Meyer before catching himself. "If you don't have the manual processes and all the manual inputs, then you don't need the people doing it. There's definitely going to be huge benefits on growth, huge benefits on underwriting efficiency and expense benefits through workload."

Update: The article was updated with more information from the annual AIG shareholder letter and a clarification that the insurer stopped selling homeowner's insurance in California.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.