AIG Estimates Q3 Catastrophe Losses Will Be $1.5 Billion

October 18, 2018

American International Group said it expects to report third quarter 2018 catastrophe losses of approximately $1.5 to $1.7 billion. These losses are largely from multiple events in Japan, including Typhoons Jebi and Trami, as well as Hurricane Florence and revisions to loss estimates on the California mudslides.

As a result, AIG expects catastrophe losses from multiple events in Japan and Asia to be approximately $900 million to $1 billion and catastrophe losses from events in North America to be approximately $600 to $700 million.

In addition, initial loss estimates for Hurricane Michael are approximately $300 to $500 million, which will be included in fourth quarter 2018 operating results.

AIG’s catastrophe loss estimates include expected losses for Validus Holdings and its affiliates. AIG completed its acquisition of the Bermuda reinsurer and specialist insurer in July.

AIG estimates that it has exhausted approximately $700 million of the $750 million retention under its North America aggregate catastrophe reinsurance program following the California mudslides, Hurricane Florence and assuming the high end of the loss estimate range for Hurricane Michael.

KBW analysts lowered their earnings estimates for AIG on the “bigger-than-expected’ catastrophe losses and book value erosion but KBW said it still expects AIG’s underwriting results to improve over time.

Morgan Stanley, which also lowered its earnings estimate for the insurer, said the catastrophe loss estimate was three times what it expected and it now expects AIG to report a break-even third quarter. “The outsized 3Q losses call into question AIG’s catastrophe risk management capability,” the analyst’s note said “The company has revamped its reinsurance program this year and strengthened its reinsurance protection. For example, it has a North America aggregate loss cover. It has exhausted ~$700m of the $750m retention which could limit further cat losses in North America through the rest of 2018. However, the large losses in Japan and Asia showed that more could be done in its overseas business.”

AIG will discuss actual third quarter financial results on Nov. 1.

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