Insurance conglomerate American International Group Inc.’s net income swung to a loss on mark-to-market adjustments in hedging programs primarily for certain products sold by its life-insurance unit.
The company’s closely watched adjusted income fell 10% in the fourth quarter, hurt by additional COVID-19 costs.
Across the life-insurance industry, Wall Street analysts treat such mark-to-market movements as a less important measure of performance than adjusted earnings, which exclude items considered nonrecurring. The value of the hedges jump around based on changes in interest rates, equity markets, corporate credit spreads and other factors.
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Including those hedges, AIG posted a net loss of $60 million for the fourth quarter, down from $922 million in the year-earlier period. Its “adjusted after-tax income” declined 10% to $827 million from $923 million.
AIG’s core General Insurance unit sells a range of property and casualty coverages to businesses and wealthy households and is one of the nation’s biggest sellers of travel insurance by premium volume.
AIG said it had fourth-quarter underwriting losses of $178 million tied to Covid-19, primarily related to travel insurance, event-cancellation insurance and reinsurance sold through its Validus unit.
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The company also had $367 million of losses from natural catastrophes including Hurricanes Sally, Zeta, Laura and Delta.
The newly posted results reflect the last full quarter that the company will be run by Chief Executive Brian Duperreault. On March 1, he will hand over his title to Peter Zaffino, the company’s president.
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The change in leadership was announced in October, along with news that AIG is taking steps to split off its life-insurance business into a separate company. That will leave it to focus on property-casualty insurance
Mr. Duperreault joined AIG in March 2017 with the task of improving long-lagging results in the core property-casualty business. Those results improved in recent quarters, and AIG pointed to additional turnaround signs as 2020 was closing.
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It said its North America and international commercial lines had enjoyed gains of 10% and 7%, respectively, in “net premiums written,” a measure of revenue, reflecting strong premium-rate increases, among other positive developments.
Even with the weaker economy after the pandemic began spreading, AIG is one of numerous big insurers to successfully raise premium rates after years of fierce industry competition that gave customers the upper hand. The competition abated as AIG and some other big insurers in the past couple of years cut back on policy limits and took other steps to boost sagging results.
AIG’s decreased profit also reflects the sale of Fortitude Group Holdings LLC, a unit containing product lines it was winding down, in the second quarter of 2020. Fortitude had contributed $70 million in pretax income in the year-earlier fourth quarter. AIG said the sale reduced its exposure to long-term liabilities and related interest-rate risk.
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“AIG’s fourth quarter and full year 2020 operating results demonstrate the continued progress we are making to position AIG for long-term, sustainable and profitable growth,” Mr. Duperreault said in the earnings release. “We are effectively managing the impacts of Covid-19 and natural catastrophes and remain well capitalized in this environment of unprecedented uncertainty.”