AIG is pricing at a loss

Results show worse combined ratio despite investment profit

AIG’s Q3 results showed the combined ratio for its general insurance arm Chartis worsened to 105.19% providing further evidence that the firm has been under-pricing as claimed by its US rivals.

Total insurance financial Highlights (2008 Q3 in brackets)

Net Premiums Written $8,076m ($9,277m)
Net Premiums Earned $7,939m ($9,294m)
Underwriting Profit/Loss -$412m (-$417m)
Net Investment Income $1,134m ($522m)
Operating Income/Loss $814m (-$1,261m)
Combined Ratio 105.19% (104.49%)

Overall, AIG reported net income of $455m, a net loss of $24.5bn and an adjusted net income of $1.9bn, compared with an adjusted net loss of $9.2bn in Q3 2008.

AIG president and chief executive officer Robert Benmosche said: “Pricing in our commercial property casualty business has been stable. Management continues to monitor rates closely and maintain underwriting discipline, turning away some renewal business due to aggressive pricing by existing and new competitors.

Chartis results

Operating income was $722m ($105m), reflecting improvement of $612m million in net investment income.

Underwriting losses driven by credit crisis related claims and continued adverse development of prior accident year loss reserves.

Net premiums written 13% decline was partially due to the effect of foreign exchange, the sale in 2008 of the unit’s Brazilian operations, and the strategic decision to remain price disciplined, particularly in workers’ compensation, as well as to the overall effect of the weakened economy.

Business retention was at its highest level since September of 2008, new business written exceeded $1.1bn and pricing remained stable.

Rates v losses

A significant portion of the increase in the current accident year loss ratio is the result of the worldwide financial credit crisis and a competitive rate environment.