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AIG encouraged by long-tail casualty remediation progress, sees lower '16 net premiums written

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AIG encouraged by long-tail casualty remediation progress, sees lower '16 net premiums written

Commercialinsurance net premiums written at American International Group Inc. will decline at afaster pace in 2016 than initially expected thanks to favorable marketconditions for ceding business to reinsurers.

RobertSchimek, CEO of AIG's commercial segment, projected during a conference call todiscuss first-quarter results that net premiums written would fall by about$2.5 billion for full year 2016, compared with prior guidance for a drop of$1.5 billion, after a first quarter in which net premium volume fell to $4.31billion from $5.05 billion in the year-earlier period.

"That is really completely fromthe increase in use of reinsurance," Schimek said when asked by an analystto explain the revised guidance. "I think the reinsurance market has beenmore robust than we had initially anticipated."

Heattributed the greater use of reinsurance for about half of the first quarter'sdecline in net premiums written, with ongoing efforts to exit certain casualtylines of business also contributing. AIG previously its effort to exitunderperforming subsegments of the U.S. casualty business, shifting the mix,and the company's resources, to shorter-tail classes and, in turn, targetingimprovement in the overall commercial insurance accident-year loss ratio.

"I'mquite pleased with where we were in the first quarter," Schimek said ofthe remediation effort. "I would say that our progress with respect toreinsurance was better than we had anticipated. Our progress with respect tothe longer-tail lines — casualty, in particular — was better than we hadexpected. But our progress with respect to shorter-tail lines, property was thearea that I think that we didn't live up to my expectations and in particular,that was with respect to attritional losses in the U.S. I'm very confident thatthe team has some good strategies and a great plan for what we'll do to addressthat in 2016."

Commercialinsurance products that AIG is seeking to grow accounted for 13% of netpremiums earned in the first quarter, down from 15% of full-year 2015 netpremiums earned. Products slated for maintenance and improvement represented46% of net premiums earned in the quarter, up from 35% of 2015's result. Thosetargeted for remediation represented 9% of net premiums earned in the quarter,down from 15% in full year 2015.

"Wecontinue to experience new business growth and strong retention and profitablesubsegments, and we'll absolutely continue to grow in these areas,"Schimek said, citing cyber and M&A insurance as two of the products AIG inwhich the company had grown "well" during the first quarter. He addedthat the company remained disciplined in a "highly competitive"international property market.

Inthe U.S. property business, meanwhile, Schimek agreed with an analyst'sassertion that it may be the most competitive line in the industry. He alsoemphasized that AIG's focus had changed in that business to becoming a"risk-management partner" for clients rather than a "capitalprovider amongst many." The company's expansion will come from thelarge-limit and middle-market segments "where engineering is the backboneof the business we're writing," he said.

Propertybusiness accounted for 23.8% of the commercial insurance net premiums writtenin the first quarter, up from 20% of the book in the year-earlier period.Casualty business represented 31.6% of commercial insurance net premiumswritten, down from 37.3%.

Schimekcautioned that AIG's progress "will not always be linear due to marketconditions, short-tail losses and other issues outside of our control."While he is confident the segment is headed in the right direction, he added,"There's a lot more work to do."