AIG touts strong annuity sales, warns of CAT market problems ahead

American International Group used nimble management to post solid third-quarter earnings despite disruptions that included Hurricane Ian and the ongoing separation of its life and retirement business.

AIG continues to remake its business under chairman and CEO Peter Zaffino, who took the reins in 2021. That included completing an initial public offering of Corebridge Financial in September, raising $1.68 billion. After the initial IPO round, AIG will control almost 78% of Corebridge’s shares, with Blackstone holding about 10%, according to filings.

"We were confident we could complete the IPO within an acceptable valuation range, and we continue to believe it was very important for the future of AIG and Corebridge to establish Corebridge as a public company in 2022," Zaffino told analysts today. "Throughout the third quarter, we also made significant progress in the implementation of a new investment management model for AIG, and Corebridge."

The tenor of the earnings call differed from the second quarter, when AIG executives announced a delay in the Corebridge IPO.

The AIG Life and Retirement plans took shape in 2021, when AIG sold a 9.9% equity stake in the segment 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 now-Corebridge investment portfolio.

Strong annuity sales

Through it all, AIG reported strong annuity sales in the third quarter.

“Life and Retirement delivered another solid quarter with premiums and deposits of $8.9 billion, a 23% increase from the prior year quarter with growth in each of the four business segments," Zaffino said. "Sales in Individual Retirement grew by 16% to $3.8 billion, including a doubling of sales in fixed annuities and a record sales quarter in index annuities. Additionally, base net investment income from the fixed income portfolio started to see meaningful benefits from the higher interest rate environment."

Overall, AIG reported third-quarter earnings of $2.71 billion and net income of $3.50 per share. The insurer posted revenue of $14.6 billion in the period. Its adjusted revenue was $11.33 billion.

AIG is one of the biggest sellers of P&C insurance to business clients around the world. But the insurer continues 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.

The insurer continues to limit its exposure in the disaster-prone state of Florida, Zaffino said. That helped AIG limit Hurricane Ian losses to $125 million.

"This result reflects the terrific work the team has done to reduce peak zone exposure in our assumed reinsurance business, particularly in Florida, where we've reduced limits deployed by approximately 60% since 2018, and have minimal exposure to Florida domestic insurers," Zaffino said.

'Even more challenging'

As he does every quarter, Zaffino warned of escalating catastrophic losses around the world. Hurricane Ian is projected to be the second largest insured natural CAT loss in U.S. history. Total insurable losses to Ian are expected to be between $50 and $60 billion, Zaffino said.

The retro-reinsurance and property CAT markets were already stressed prior to Ian, he added. This year will be the fifth in the last six years with natural CAT industry losses of at least $100 billion, Zaffino said, a level recorded just twice prior to 2017.

In addition, residential total insured values in Florida increased by more than 50% over the last decade, he said. Furthermore, a "disproportionate" amount of the CAT losses are finding their way into the reinsurance market. It all adds up to bad news for P&C insurers, Zaffino said.

"Available reinsurance capacity is forecasted to be the lowest aggregate limit available in over a decade, making conditions in the property cat reinsurance market even more challenging," he 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.