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AIG CEO: 'Materially' higher P&C rate increases in Q2, momentum 'based on facts'

The path to full-year underwriting profitability for the general insurance business of American International Group Inc. has been smoothed by refinements in risk appetite and an acceleration in rate increases.

Speaking during a conference call to discuss results for the second quarter, President and CEO Brian Duperreault said AIG's general insurance business has achieved an "impressive" turnaround, and possesses "strong momentum" heading into the second half of 2019 after two consecutive reporting periods of calendar- and accident-year underwriting profits. He also affirmed previously issued full-year 2019 guidance for an underwriting profit.

AIG executives on the call reported progress in substantially reducing gross limits for various classes of business and lowering capacity in certain areas as part of an ongoing internal initiative. The general insurance business also benefited from external tailwinds associated with the pricing environment. Some of the rate increases accelerated "materially" during the second quarter, Duperreault said. He said recent pricing momentum has been driven by carriers exercising underwriting discipline and rigor in capacity deployment, as opposed to an outright contraction in capacity.

"To me," he said, "that means that the turn is based on facts rather than emotions and is, therefore, more sustainable." Company officials declined to speak to pricing trends they have observed beyond the second quarter's end, however.

COO Peter Zaffino said AIG achieved average rate increases in the high single digits across its portfolio during the second quarter, as compared with the mid-single digits in the first quarter. He identified business lines such as commercial property, directors' and officers' liability and excess casualty among the drivers of rate increases in the U.S.

Zaffino pointed to specific progress made in AIG's Lexington Insurance Co. excess-and-surplus lines segment when it comes to revising its risk appetite and achieving sizable rate increases. He also called out the success AIG's financial lines business had achieved in terms of reducing limits and raising rates.

While the general insurance business benefits from rate-driven tailwinds, AIG's life and retirement segment has encountered some headwinds in the form of lower interest rates and volatile capital markets.

Kevin Hogan, executive vice president and CEO of AIG's life and retirement business, said recent volatility "is a reminder that the second half may be much more challenging from a capital markets perspective," though the company has not changed its market assumptions for the full year.

AIG achieved "significantly increased sales" in its fixed and index annuity products during the first half, benefiting from what Hogan characterized as "strong market demand and favorable pricing conditions."

But he also cautioned that AIG anticipates weaker sales of certain product lines in the second half of the year due to lower interest rates and environmental uncertainty. He specifically included fixed annuities among those products, assuming the "prevailing interest rate environment" persists.

AIG ranked as the No. 1 seller of fixed annuities and individual annuities across product types, according to survey data for the first quarter compiled by the LIMRA Secure Retirement Institute.

Hogan said AIG would remain disciplined from the perspective of product pricing and features.