AIG Net Up 26% In Second Quarter

By Susanne Sclafane

NU Online News Service, July 22, 1:51 p.m.EDT?American International Group's Chairman MauriceGreenberg dismissed soft insurance market concerns today as hiscompany reported a 25.7 percent jump in second-quarter consolidatednet income.[@@]

AIG's consolidated net income for the quarter was a record $2.9billion, or $1.09 per share, compared to $2.3 billion, or 87 centsper share, for the period last year. Operating income, excludingrealized capital losses on investments, was an even $3 billion, up19.2 percent from second-quarter 2003.

For AIG's p-c operations, operating income jumped 22.8 percentto $1.59 billion, while net premiums posted a double-digit gain of17.4 percent.

"I can't find much to complain about in the quarter," Mr.Greenberg said, noting, however, that AIG's domesticproperty-casualty group did nonrenew some $275 million in writtenpremiums.

But with the p-c operation's net written premium totaling $10.4billion, $5.8 billion of which related to domestic business, thenonrenewals were seen as a drop in the bucket and not somethingthat Mr. Greenberg viewed as a blemish on AIG's results or theoverall market landscape.

The nonrenewals did prompt a mild comment about howundisciplined pricing practices by competitors can "unsettle themarket" and add to its long-term volatility. And Mr. Greenberg saidAIG also chose to nonrenew nearly $50 million in foreign p-cbusiness, where pricing, terms and conditions, or loss experiencedid not meet its standards.

But "competition is, by and large, not unreasonable," hesaid.

"My belief is that some of the recent reports by companies toincrease reserves may not be the only ones, and that might have astabilizing effect on the market," he added.

For AIG, average rates were up about three percent overall, Mr.Greenberg said, noting that the figure accounts for business shedand for what price decreases the company was willing to take. Healso said that AIG is one of the clear beneficiaries of a flight toquality, explaining why premium volume continues to grow.

July premium volumes were pretty much on target, he said. "Asfor those who believe that second quarter or second half may besignificantly different from the first half of the year, I wouldn'tsign on to that" theory, he said.

"Yes, there's competition in the property lines?and there'scompetition in all lines. You expect that in a market economy.Rates don't go in one direction," Mr. Greenberg said.

But "I do not view what we're seeing in 2004 as the beginning ofa traditional down cycle that's going to go on for several yearsbefore righting itself. I do not believe that. I think it's a waysaway from that," he asserted.

Asked specifically about comments made by Everest Re's chairmanJoseph Taranto earlier this week that July 1 conditions in both theinsurance and reinsurance markets were disappointing, and thatinsurers and reinsurers are aggressively pursuing market share, Mr.Greenberg said, "I do not believe, from what I see today, thatwe're on a slippery slope going down to chaos."

Asked specifically to describe exactly what types of terms andconditions would prompt AIG to nonrenew business, members of AIG'smanagement team described certain types of severability provisionsin directors and officers as one example, noting that AIG would notbroaden its D&O contract "to pick up outright fraud."

Also, in excess liability, AIG will nonrenew in some cases whereemployment practices is being added back in, professional liabilityis being added in, or coverage for exposures like silica is beinggranted.

At one point, an analyst asked Mr. Greenberg to explain whyAIG's stock sells at about the same price it did three years agoeven though income is continually setting new records.

"You ought to have a better answer to that than we do," Mr.Greenberg retorted. "We don't control that. This is a marketeconomy," he said.

"Our earnings speak for themselves," he added. "Maybe some ofthe analysts have not understood" AIG's operations "as they should.And maybe they're not reporting it as they should. Maybe you shouldthink about that," he said.