AIG Reports $24B Loss in Q3; Claims ‘Strong’ Client Retention

November 10, 2008

Giant financially-troubled insurer American International Group Inc. posted its largest-ever quarterly loss today– $24.47 billion — as the damage from write-downs on assets related to subprime mortgages continued and losses from catastrophes hit home.

The third-quarter $24.47 billion ner loss compares to a profit of $3.09 billion for the third quarter of 2007.

About $7 billion of the loss is related to credit default swaps, on which AIG has previously reported some $25 billion in market losses this year. AIG also recorded $18.31 billion in capital losses arising primarily from impairment charges on its investment portfolio.

AIG Chairman and Chief Executive Officer Edward M. Liddy found some positive news in the results. “Reported earnings are not indicative of the underlying core earnings power of our insurance businesses, which remain solidly capitalized. Retention of our customers remains strong and reflects the support and loyalty of our long-term partners, intermediaries and sponsors,” he said.

General Insurance third quarter 2008 operating loss was $899 million, compared to a profit of $2.51 billion in the third quarter of 2007.
The comparison reflects catastrophe losses of $1.39 billion, primarily related to hurricanes Gustav and Ike, compared to $24 million in the third quarter of 2007, an increase in operating losses at United Guaranty Corp. (UGC) of $901 million, which included a premium deficiency reserve established on the second-lien business, and a decline in net investment income of $659 million, primarily due to losses from partnership and mutual fund investments.

General Insurance net premiums written were $11.73 billion in the third quarter of 2008, a slight decline compared to last year’s third quarter. Commercial Insurance, which remains a core part of AIG, reported net premiums written during the third quarter of 2008 of $5.60 billion, a 6.9 percent decline from the third quarter of 2007, which AIG said reflects continued underwriting discipline, particularly in workers compensation, and economic conditions in certain key industries, including construction, transportation and real estate.

Despite the difficult economic climate and other challenges, AIG said its Commercial Insurance segment retained the “vast majority of its customers and continued to write new business as customers recognized the ongoing value of the company’s market-leading capabilities.”

The combined ratio for General Insurance came in at 113.61 for the quarter compared to 90.17 for the third quarter last year. For the nine months ended Sept. 30, 2008, the combined ratio is 102.70 compared to 88.26 for the same period last year.

Source: AIG

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