Covid-19 Biggest Catastrophe Ever: AIG Exec; 1Q Loss Posted

By John Hilton

American International Group is budging for COVID-19 catastrophe losses that exceed Hurricane Katrina, an executive said Tuesday morning.

The insurer set aside $419 million for catastrophe losses in the quarter with $272 million of that estimated to be for losses related to COVID-19. And the worst is yet to come, said CEO Brian Duperreault.

"We believe COVID-19 will be the single largest CAT [catastrophic] loss the industry has ever seen," he added.

AIG posted an underwriting loss of $87 million in its general insurance business in the first quarter, compared with a profit of $179 million a year earlier. Execs on a Tuesday morning earnings call attributed the difference to losses related to the pandemic.

For property/casualty insurers and reinsurers, Hurricane Katrina produced $61.9 billion in insured catastrophe losses in the U.S – the highest annual insured catastrophe loss tally ever.

COVID-19 is much worse because it is everywhere AIG does business, said Peter Zaffino, president and chief operating officer for the company.

"Going forward, COVID-related losses will impact all aspects of underwriting insurance from absolute limits available, limits deployed to certain lines of business, terms and conditions, co-insurance and structure of coverage just to name a few," Zaffino said.

Pandemic losses in the first quarter came in many areas, he added, including travel and related accident health, contingency, commercial property, trade credit and workers' compensation. AIG also projected business interruption insurance losses, Zaffino said.

That topic is the subject of several lawsuits in American courts over COVID-related exclusions cited by insurers. AIG policies require a showing that the virus caused direct physical loss or damage that was the cause of the business interruption, Zaffino explained.

"We are confident these exclusions and related terms and conditions will be upheld should they be challenged," he said.

"In the small fraction of commercial property policies, where we have provided affirmative coverage for infectious disease, we've done so under strict underwriting guidelines, offering small supplements with terms and conditions limiting coverage, in many instances, only to certain specified diseases and regardless, only where it can be shown that the disease was physically present and led to a governmental suspension of the business operations."

AIG's reinsurance program will further protect the insurance giant from taking severe losses from the pandemic, he added.

Mixed Results

AIG reported net income of $1.7 billion, or $1.98 per diluted common share, up from $654 million, or $0.75 per diluted common share, in the prior year's quarter. The company recorded $3.5 billion of pre-tax capital gains related to mark-to-market gains from variable annuity and interest rate hedges, compared to $446 million in net capital losses a year prior.

One of the largest U.S. insurers, AIG took an underwriting loss of $87 million in its general insurance business in the first quarter. In the 2019 first quarter, the company recorded a profit of $179 million.

While the company declared a quarterly dividend $0.32 of per share to be paid in the second quarter, AIG withdrew its guidance for 2020.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.