AIG Ramps Up Life & Retirement Split While Annuity Sales Climb

American International Group benefited from a surge in fixed annuity business in the first quarter, even while it continues a plan to split off its Life & Retirement business.

The company's plan for Life & Retirement is into its second year and remains on track, CEO Peter Zaffino said during this morning's first quarter earning's call, despite rising interest rates. The business segment was recently rebranded as Corebridge Financial and will go public during the second quarter.

Once the Corebridge business plan is fully executed, AIG "expects" to retain a greater than 50% stake, Zaffino said.

Plans accelerated in 2021, when AIG sold a 9.9% equity stake in Life & Retirement to Blackstone for $2.2 billion in an all-cash transaction. A March 2022 deal allows BlackRock to manage up to $60 billion of the global AIG investment portfolio and up to $90 billion of the Life & Retirement investment portfolio.

AIG is already seeing results, Zaffino said.

"Blackstone's capabilities in the early days of our partnership resulted in Life & Retirement seeing one of his strongest fixed annuity sales quarters in over a decade, with premiums and deposits up nearly 150% year-over-year to $1.6 billion, while surrenders and death benefits both improved slightly," Zaffino told analysts today. "I'm pleased with the momentum in Life & Retirement and, in particular, the early success of our partnership with Blackstone that was evident in the first quarter results."

Overall, AIG reported net income of $4.25 billion, up 9.9% from $3.87 billion in the year-earlier quarter.

Rising Interest Rates

Still, rising interest rates makes any exit of the insurance product sales business seem dubious. During its Wednesday meeting, the Federal Reserve was expected to raise its benchmark borrowing rate by a half-point for the first time in 22 years. In March, the Fed hiked the rate for the first time since late 2018, upping it by a quarter-percentage-point.

As noted by The Wall Street Journal today, Corebridge derives about 55% of its earnings from spread income sensitive to the level of interest rates.

Life & Retirement reported premiums and deposits of $7.27 billion, as opposed to $6.40 billion in the year-ago quarter. The segment reported adjusted pretax income of $724 million versus $941 million in Q1 2021.

AIG blamed the income decline on "lower yield enhancements across all segments, as well as the sale of the affordable housing portfolio."

AIG most profitable division sells property & casualty insurance around the world. Highlights from the insurer's first quarter include: strong growth in global commercial lines, which are policies sold to business clients; more than $1 billion of new contracts for the fourth consecutive quarter, strong retention of existing clients and 9% rate increases.

AIG reported significantly improved catastrophic losses of $274 million, mostly attributable to Australian floods, compared to CAT losses of $422 million in the first quarter of 2021.

Russia-Ukraine War

During prepared remarks, Zaffino veered off course for a bit to comment on the insurance impact of the Russian invasion of Ukraine, during which both sides are reporting hefty property damages.

"We've not seen a situation like this in modern times," Zaffino said. "It presents a unique set of circumstances that make any exposure or coverage analysis complex."

AIG has received a few claims on "political violence or political risk policies," he added. "While we know it will take time for the full impact of the Russia-Ukraine situation to emerge. Based on the work we did in the first quarter to analyze our exposures and review known claims, we do not believe the impact will be material to AIG."

If these claims should continue, there are multiple reinsurance programs available to spread out risk, Zaffino explained. Other insurance coverages vulnerable to the Russia-Ukraine conflict include standard property and energy policies, Zaffino said, and quite often, "broad exclusions" exist within the policy parameters.

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.