AIG posts $2.7bn Q2 loss

AIG’s first quarter 2010 profit of $1.5bn has been wiped out by a second-quarter loss of $2.7bn, resulting in a first-half loss of $799m for the insurer.

However, this is an improvement on the $2.5bn loss AIG made in the first half of 2009.

The second quarter result was largely driven by a $3.4bn loss from discontinued operations, comprising American Life Insurance Company (ALICO) and Nan Shan Life Insurance Company, of which £3.3bn was an impairment charge on goodwill allocated to ALICO.

The result was also hit by $564m of net capital losses, and a non-qualifying derivative hedging loss of $102m, which were slightly offset by a $93m net gain on the sale of divested business.

Excluding these items, AIG’s would have made a profit of $1.3bn.

Despite the group-wide loss, the pre-tax profit of Chartis, AIG’s general insurance business, more than doubled to $2.4bn in the first half of 2010 from $1.1bn in the same period last year. In the second quarter alone, the unit’s pre-tax profit was up 4% to £1bn from £977m.

However, Chartis’s first-half income excluding net realised capital gains and bargain purchase gains was only 6% up on last year, at £1.8bn, while the second quarter profit excluding these gains fell 5.8% to $955m.

AIG’s first half general insurance combined ratio increased to 102.3% from 97.4%, while the second quarter combined ratio rose to 102% from 98.2%.

Chartis incurred around $287m of catastrophe losses in the second quarter, principally related to the floods in the south-eastern US, Hurricane Alex, US hailstorms, the Deepwater Horizon oil rig explosion, and the Icelandic volcano.

Chartis has incurred a net property loss of $23m related to the Deepwater Horizon explosion and subsequent oil spill in the Gulf of Mexico.

Chartis continues to monitor the casualty exposure to Deepwater Horizon and believes its carried loss reserves at June 30 2010 are adequate to cover estimated losses attributable to this event. However, AIG’s claims estimates may change over time, as the forensic investigation is incomplete, the cleanup is incomplete, and the litigation has only just begun.