Quarterly losses at AIG have widened to $3bn in the latest setback for the insurer as it tries to recover from the financial crisis sending shares 2.6 per cent lower in extended trading.
The biggest US insurance company by market capitalisation took a $5.6bn charge for “adverse reserve development” in its latest financial results — meaning policy claims costs are rising more than expected.
Peter Hancock, chief executive, said AIG had booked the charge in response to “emerging severity trends across lines and accident years.”
“We therefore chose to make more prudent reserve assumptions for our loss estimates.”
AIG posted a net loss of $3bn in the three months to the end of December. That compares with $1.8bn a year earlier. After-tax operating losses also widened, from $1.32bn to $2.79bn.
The insurer has been trying to improve returns after the activist investors Carl Icahn and John Paulson last year called on the board to consider a break up. Mr Hancock resisted their demands. The activists took seats on the board as part of a truce.
The company’s latest quarterly loss comes a day after Hank Greenberg — who ran AIG for four decades before he was ousted during a probe into accounting fraud in 2005 — said AIG is “currently a shadow of what it had been”.
However, Mr Hancock told investors to expect better results in future and said the insurer was still committed to returning $25bn in capital to shareholders.
“We took decisive actions in 2016 to dramatically reduce uncertainty and deliver higher quality, more sustainable earnings in the future,” he said in a statement. “We expect to see the results from our improved underwriting platform, reduced expense base, and the strong improvement in our business mix.”
The chief executive also indicated that the threat of future reserve charges had been quashed by a deal AIG struck last month with Warren Buffett’s Berkshire Hathaway.
AIG has agreed to pay Berkshire about $10bn for reinsurance – backstop protection – on workers’ compensation and other policies. The deal is retrospective, covering AIG’s claims costs back to the start of 2016. AIG said on Tuesday that it expected to book a $2.6bn gain in the first quarter of 2017 because of the agreement.