AIG stays the course on efficiency plan as it navigates COVID-19 challenges

August 4, 2020.

American International Group executives said Tuesday that the insurer is poised to benefit from rebounds in its core businesses as it pushes ahead on a multiyear quest to shed its reputation for inefficiency.

CEO Brian Duperreault and other executives used Tuesday’s quarterly earnings conference call to highlight underlying improvements in the carrier’s core units as it navigates the “execution phase” of a company-wide initiative to modernize operations and cut general operating expenses by $1 billion.

In particular, the executives shared encouraging outlooks for the company’s revamped reinsurance lines and retirement and life insurance unit after they took substantial hits related to the pandemic.

The call follows a challenging second quarter for AIG, which on Monday posted a 56% year-over-year decline in quarterly adjusted earnings as pandemic fallout drove high catastrophe losses. Private equity losses pressured net adjusted investment income, which fell $537 million from the prior-year quarter.

The AIG 200 plan was first unveiled almost a year ago in the insurer’s second-quarter 2019 investor call. At the time, Duperreault acknowledged that AIG has “never been noted for its operational excellence” and was weighed down by outdated legacy processes. 

Faced with questions about the plan’s details, AIG in February pledged $1.3 billion in investments to improve core processes, technology infrastructure and services through a series of “core operational programs.” The main goal is to reduce AIG’s expense ratio and general operating expenses.

Company executives on Tuesday sought to downplay AIG’s quarterly setbacks, which included $490 million year-over-year underwriting loss, by highlighting signs that the insurer is trimming down and positioned for growth after unusual headwinds in the first half of 2020.

“Throughout the second quarter, we continued to build on a strong foundation created in late 2017 to instill a culture of underwriting excellence [and] adjusted risk tolerances and [to] implement a best-in-class reinsurance program,” Duperreault said. He took control of AIG in 2017.

AIG Chief Operating Officer Peter Zaffino said AIG could look forward to growth across its reinsurance lines. “For the remainder of the year, we expect that all reinsurance lines will experience continued positive rate movement and there will be opportunities to grow our top line with improved risk-adjusted returns,” he said.

Kevin Hogan, who heads AIG’s life and retirement organization, said his unit may now experience a “strong rebound” in retail annuity sales compared to June. “Our retail new business pipeline continues to build, suggesting improving volumes from historically low second quarter levels,” he said.

Excluding the impacts of COVID-19 revealed signs of underlying progress, according to Duperreault. He hailed AIG’s sale of its majority stake in as a major step in “de-risking” the balance sheet by offloading “the vast majority” of the insurer’s legacy portfolio in accordance with its modernization plans.

Despite the quarter’s underwriting loss, Duperreault highlighted the launch of Syndicate 2019 as a “positive development” on the path to long-term modernization, even while it drove up personal insurance losses during the quarter. First unveiled in October 2019, Syndicate 2019 was launched to reinsure risks from AIG’s Private Client Group and drive company growth.

Zaffino emphasized the company’s progress on expense reduction, pointing out that AIG’s adjusted accident year combined ratio fell to 94.9 from 101 in the second quarter of 2018. 

“We remain on track to achieve $300 million in exit run-rate savings for 2020, and our overall targets of achieving $1 billion in run-rate savings by the end of 2022, with a cost-to-achieve of $1.3 billion, have not changed,” Zaffino said.