American International Group benefited from an increase in fixed annuity business in the first quarter, although it continues its plan to spin off its Life and Retirement business.
The company’s life and retirement plan is in its second year and remains on track, CEO Peter Zaffino said during this morning’s first-quarter earnings call, despite rising interest rates. interest. The business segment was recently rebranded as Corebridge Financial and will go public in the second quarter.
Once Corebridge’s business plan is fully executed, AIG “expects” to maintain a stake greater than 50%, Zaffino said.
Plans accelerated in 2021, when AIG sold a 9.9% stake in Life & Retirement to Blackstone for $2.2 billion in an all-cash transaction. A March 2022 deal allows BlackRock to manage up to $60 billion of AIG’s global investment portfolio and up to $90 billion of the Life and Retirement investment portfolio.
AIG is already seeing results, Zaffino said.
“Blackstone’s capabilities early in our partnership helped Life & Retirement experience one of its best fixed annuity sales quarters in over a decade, with premiums and deposits up nearly 150% year-over-year to $1.6 billion, while redemption and death benefits improved slightly,” Zaffino told analysts today. “I am pleased with the momentum in life and pensions and, in particular, the early success of our partnership with Blackstone which was evident in the first quarter results.”
Overall, AIG reported net income of $4.25 billion, up 9.9% from $3.87 billion in the prior quarter.
Rising interest rates
However, rising interest rates make any exit from the business of selling insurance products questionable. At its Wednesday meeting, the Federal Reserve was expected to raise its benchmark borrowing rate by half a point for the first time in 22 years. In March, the Fed raised the rate for the first time since the end of 2018, raising it by a quarter of a percentage point.
Like noted by the Wall Street Journal todayCorebridge derives approximately 55% of its earnings from interest rate sensitive spread income.
Life & Retirement reported premiums and deposits of $7.27 billion, compared with $6.40 billion in the year-ago quarter. The segment reported adjusted pretax profit of $724 million versus $941 million in the first quarter of 2021.
AIG blamed the decline in revenue on “weaker performance improvements across all segments, as well as the sale of the affordable housing portfolio.”
AIG’s most profitable division sells property and casualty insurance worldwide. Highlights of the insurer’s first quarter include: strong growth in global commercial lines, which are policies sold to business customers; more than $1 billion in new business for the fourth consecutive quarter, strong retention of existing customers and rate increases of 9%.
AIG reported a significant improvement in catastrophic losses of $274 million, mostly attributable to flooding in Australia, compared to CAT losses of $422 million in the first quarter of 2021.
During prepared remarks, Zaffino veered off course a bit to comment on the insurance impact of the Russian invasion of Ukraine, during which both sides report heavy property damage.
“We haven’t seen such a situation in modern times,” Zaffino said. “It presents a unique set of circumstances that make any exposure or hedging analysis complex.”
AIG has received a few complaints about “political violence or political risk policies,” he added. “While we know it will take time for the full impact of the Russian-Ukrainian situation to manifest itself. Based on the work we did in the first quarter to analyze our exposures and review known claims, we do not don’t think the impact will be significant to AIG.”
Should these claims continue, there are several reinsurance programs available to spread the risk, Zaffino explained. Other insurance coverages vulnerable to the Russian-Ukrainian conflict include standard property and energy policies, Zaffino said, and very often “broad exclusions” exist within policy parameters.
Editor of InsuranceNewsNet, John Hilton has covered business and other beats in more than 20 years of daily journalism. John can be reached at [email protected]. Follow him on Twitter @INNJohnH.
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