American International Group Inc. has issued an initial estimate of its total expected losses relating to third quarter catastrophe events, principally Hurricane Katrina, totaling approximately $1.1 billion after-tax.
AIG estimates that its total after-tax insurance related losses, net of reinsurance recoverables, to be recorded in the third quarter, will be approximately $900 million. In addition, AIG expects to record an after-tax charge of approximately $170 million relating to reinstatement premiums.
The $900 million estimate includes AIG’s Domestic Brokerage Group (including Lexington Insurance Company), Domestic Personal Lines business, Foreign General operations, Domestic Life Insurance operations, AIG’s prorated share of losses from its majority ownership in Transatlantic Holdings Inc. and Lloyd’s Syndicate 1414 (Ascot), and AIG’s minority investments in Allied World Assurance Co., Ltd and IPC Holding Ltd. In addition to insurance related losses, AIG estimates that it will incur approximately $60 million after-tax in non-insurance losses, primarily from consumer finance operations, investment portfolio impairments and AIG owned and leased facilities.
These preliminary estimates involve the exercise of considerable judgment and reflect a combination of ground-up evaluations, modeled numbers and industry loss estimates. Due to the unprecedented nature of this event, including legal and regulatory uncertainty, an inability to access portions of the affected areas, the complexity of factors contributing to the losses and the preliminary nature of the information used to prepare these estimates, there can be no assurance that AIG’s ultimate costs associated with this event will not exceed these estimates.
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