AIG Says Pandemic ‘Catastrophe’ Puts Dent in Travel Business

Written by
Katherine Chiglinsky
Written by

Katherine Chiglinsky

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(Bloomberg) -- American International Group Inc. is feeling more pain from the pandemic.

The insurer, which took a $272 million hit in the first quarter from claims related to Covid-19, reported an additional $458 million of costs tied to the pandemic in the three months ended June 30. The crisis has also hurt sales of travel insurance and increased mortality rates in the life insurance operation.

“Covid-19 remains a formidable, and ongoing, catastrophe,” Chief Executive Officer Brian Duperreault said Tuesday in an earnings call discussing second-quarter results. “AIG continues to show remarkable strength and resiliency, ” and the impact on different business lines has been “in line with what we expected,” he said.

The shares, down 41% this year, dropped 6.3% to $30.11 at 10:37 a.m. in New York, after falling as much as 7.5% earlier Tuesday.

AIG joins rivals including Chubb Ltd. that have been hit by costs tied to the pandemic as the virus spreads in the U.S. The New York-based insurer has called the fallout “manageable” so far, with Duperreault saying it's probably more of a threat to the firm's profits than its capital levels.

Net premiums written in the property-casualty business dropped 16% in the second quarter, hurt by the pandemic's impact on travel insurance as well as the effect of its newly formed syndicate at Lloyd's of London. The Lloyd's deal, which was struck to reduce AIG's exposure to the business's volatility, means the company will retain a smaller portion of the premiums.

About 40% of AIG's death claims related to Covid-19 are an acceleration of payouts the company would have expected in the next five years, according to Kevin Hogan, CEO of AIG's life and retirement business.

AIG posted a $7.9 billion net loss in the second quarter, most of which was linked to the sale of a majority stake in Fortitude Group Holdings, a move management has explained as a means of de-risking AIG's balance sheet. The ultimate loss came in worse than analysts at Evercore ISI expected.

Still, the company's adjusted profit beat estimates. Meyer Shields, an analyst at Keefe, Bruyette & Woods, said it was an “admittedly noisy” quarter, but he's still optimistic the company's property-casualty business will show continued improvement in 2021.