AIG 2021: Strong Annuity Sales Not Enough To Offset COVID Deaths

American International Group swatted away COVID-19, persistent volatility and rampant catastrophic losses to turn a strong fourth-quarter profit.

AIG's reported net income of $3.74 billion reversed a net loss of $60 million in the year-ago quarter. Its adjusted after-tax income totaled $1.34 billion, up 62% from $827 million.

AIG has rebounded with very strong underwriting overall, CEO Peter Zaffino told analysts today, despite continued volatility in various units.

"AIG delivered outstanding financial results with General Insurance continuing to produce improved underwriting profitability through excellent top line growth," Zaffino said, "and vastly reduced volatility due to gross limit reductions and the strategic use of reinsurance, and Life and Retirement again making a meaningful contribution to our overall results."

AIG is spinning off its Life & Retirement division into a separate company, with an initial public offering planned.

The Life & Retirement segment reported adjusted pretax income of $969 million in the fourth quarter, down 5.6% from the year-ago quarter. COVID-19-related deaths dragged down improved revenues from higher annuity sales, fee income and alternative investment income.

“Life and Retirement delivered another solid quarter due to its diversified business, increased annuity sales and the favorable impact of equity markets on both the investment portfolio and fee income," Zaffino said.

AIG closed a deal to sell a 9.9% equity stake in its Life & Retirement business to Blackstone for $2.2 billion in an all-cash transaction. As part of the agreement, AIG entered a long-term strategic asset management relationship with Blackstone to manage an initial $50 billion of Life & Retirement’s existing investment portfolio upon closing of the equity investment, with that amount increasing to $92.5 billion over the next six years.

Shifting Amid Catastrophe

AIG is one of the biggest sellers of P&C insurance to business clients around the world. But the insurer is beginning to shift its coverage in certain areas. Late last year, the insurer informed about 9,000 high-net-worth California homeowners that their policies will not be renewed. AIG is concerned about wildfires that are causing massive destruction in the state.

Those customers might be eligible for coverage under another AIG unit, the insurer has said.

"Aggregation and profitability challenges led us to the conclusion that we have to offer the property homeowner's product, as an example, to excess-and-surplus lines on a non-admitted basis in multiple states," Zaffino explained.

The threat accompanying natural disasters is a growing theme around the world, he added, and AIG will adapt.

Last year was the sixth-warmest year on record since NOAA began tracking global temperatures in 1880, he explained. Hurricane Ida cost an estimated $36 billion of insured loss and was a third-largest hurricane on record. In North America, $17 billion of winter weather losses was the largest on record, and $13 billion of insured loss for European flooding was the costliest disaster on record for the continent, Zaffino said.

"After careful review, we decided to take meaningful steps to address this risk issue in our high-net-worth business, which will allow us to continue to offer comprehensive solutions to our clients that are more consistent in sustainable," he said.

General Insurance Stands Out

Zaffino rose to the top of AIG off his success leading its General Insurance unit. After taking over as president and CEO in March 2021, Zaffino assumed the additional role of chairman of the Board of Directors on Jan. 1, 2022.

The General Insurance unit again led the way in the fourth quarter with a 7% increase in net premiums to $5.96 billion. Executives credited premium-rate increases and new policies sold, including a 13% increase in global commercial-insurance premiums, to $4.12 billion, and an 18% increase for the company’s North American personal-insurance unit, to $434 million.

"The business reported an underwriting profit for full year 2021 and for every quarter of the year, due to disciplined execution and volatility reduction in an environment of ever-increasing natural catastrophe risk," Zaffino said.

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.

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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.