Fortitude Re losses knock AIG profit

AIG's fourth quarter net income plunged to $86 million from $545 million in 2023, largely due to continued net realised losses linked to Fortitude Re funds.

However, AIG said the net realised losses were offset by continued progress by the company, which included the sales of Bermuda-based Validus Re and Crop Risk Services and the continued deconsolidation of CoreBridge. 

For the year, AIG recorded a profit of $3.6 billion compared to $10.2 billion. 

AIG also attributed the drop in net income to the Fortitude funds, saying: "The decline was primarily driven by net realized losses largely related to Fortitude Re funds withheld embedded derivative at Life and Retirement compared to gains in the prior year, as well as derivative activity."

AIG sold its majority stake in Bermuda-based Fortitude Re in 2020 but Fortitude reinsures $30 billion of reserves from AIG’s Legacy Life and Retirement Run-Off Lines and approximately $4 billion of reserves from AIG’s Legacy General Insurance Run-Off Lines related to business written by multiple wholly-owned AIG subsidiaries.

for the quarter, AIG's general insurance segment produced a profit of $1.4 billion compared to $1.2 billion in 2022, while life and retirement rose to $957 million compared to $852 million. 

Other operations recorded a narrower loss of $399 million compared to $451 million while net investment income rose to $3.9 billion from $3.2 billion. 

AIG chairman and chief executive officer Peter Zaffino said: “In 2023, AIG delivered outstanding financial results, highlighted by excellent underwriting performance and the successful execution of multiple complex initiatives, while delivering exceptional value for our clients and stakeholders. 

"The full year adjusted after-tax income per diluted share increased 33% from the prior year to $6.79. We have further repositioned AIG for the future with the divestitures of Validus Re and Crop Risk Services, and we enter 2024 with significant momentum."

On general insurance, he added: "The full-year 2023 combined ratio of 90.6% represents an improvement of 130 basis points year-over-year. Accident year combined ratio, as adjusted, of 87.7% represents an improvement of 100 basis points year-over-year. 

"2023 margins and underwriting income were the best results achieved in recent history. The quality of the underwriting portfolio once again enabled exceptional success at January 1 in renewing our reinsurance placements."

“For the full-year 2023, General Insurance net premiums written increased 5% year-over-year, or 7% on a comparable basis†, driven by 5% growth in Commercial Lines led by 17% growth in Lexington and 10% in Global Specialty. For the fourth quarter, North America Commercial Lines pricing, which includes rate and exposure, increased 7% and remains ahead of loss cost trend. Global Commercial pricing increased 6% and was in-line with loss cost trend.

“Life & Retirement continued to deliver strong financial results, benefiting from continued spread expansion and strong sales with total premiums and deposits exceeding $40 billion for the full year. Base net investment income continued to see favorable outcomes from the higher interest rate environment and, for the full-year 2023, Individual and Group Retirement produced a 46 basis point expansion in base spread year-over-year."

Zaffino said AIG plans to "deconsolidate" subsidiary Corebridge, having reduced its ownership stake to 52% through a series of secondary offerings."  

He added: “We have significant momentum as we enter 2024, and excellent underwriting, operations, claims service, and talent are what will drive AIG’s continued growth. As we continue to navigate an increasingly complex global risk environment, we will remain agile and disciplined while delivering sustainable and differentiated value to our customers, partners and stakeholders.”