American International Group Inc.’s reported good news in its commercial lines business during the first quarter that was partially offset by low interest rates and weak investment returns.
AIG on Thursday reported net income increased more than 50 percent to $2.47 billion in the first quarter, thanks to gains from the sale of two of its large shareholdings.
After-tax operating income was $1.7 billion for the first quarter, which matched the prior-year quarter.
The operating results in the first quarter reflected improved underwriting results in Commercial Insurance, lower alternative investment returns compared to a year ago, as well as the continued effect of the low interest rate environment on net investment income, the insurer said.
Pre-tax operating income for Commercial Insurance increased to $1.5 billion, up from $1.4 billion in the prior-year quarter, primarily due to improved underwriting results from Property Casualty and Mortgage Guaranty. This was partially offset by lower net investment income from Property Casualty and Institutional Markets.
Property Casualty’s increase operating income is attributable to an increase in underwriting income, partially offset by lower net investment income. The combined ratio decreased 1.8 points to 97.1 in the first quarter of 2015. The loss ratio decreased 1.3 points to 68.1 in the first quarter of 2015, primarily due to lower current accident year losses, lower catastrophe losses and lower net unfavorable prior year loss reserve development, partially offset by a net reserve discount charge for workers’ compensation reserves compared to a net reserve discount benefit in the prior-year quarter.
Catastrophe losses were $71 million in the first quarter of 2015, compared to $184 million in the prior-year quarter.
Net Premiums Up
First quarter Property Casualty net premiums written increased 1 percent compared to the prior-year quarter, primarily driven by new business growth in Financial lines and Property, as well as a renewal of a multi-year multinational policy in Financial lines which contributed approximately 40 percent of the growth, according to the insurer.
These P/C premium increases were partially offset by the decreases in U.S. Casualty, reflecting rate pressure and the effect on renewals from continued discipline in certain classes of business in Specialty, the company said.
Consumer Insurance pre-tax operating income decreased to $945 million compared to $1.2 billion in the prior-year quarter, reflecting, the company said, lower net investment income, primarily from lower returns on alternative investments and lower base yields, and higher general operating expenses and less favorable mortality gains in Life than in the prior-year quarter.
“Our first quarter results showed progress on our financial objectives, and our commitment to balance sheet management,” said Peter D. Hancock, AIG president and chief executive officer.
In the first quarter of 2015, AIG paid $332 million for acquisitions in both its Commercial Insurance and Consumer Insurance businesses, which is in addition to the $308 million paid for the acquisition of AIG Life Limited at the end of 2014.
One of the acquisitions was a controlling stake in NSM Insurance Group, a managing general agent and insurance program administrator, from ABRY Partners and NSM management.
Personal Insurance reported an operating loss in the first quarter of 2015 compared to the prior-year quarter, primarily due to lower net investment income. The combined ratio increased slightly to 103.2 as the decrease in the loss ratio was offset by an increase in the acquisition ratio.
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