Before the cynics start making more out of this than it is lets discuss today's Business Insurance report about American International Group Inc. ("AIG") announcement of a 15.9% drop to $3.2 billion in first quarter 2006 profits, due in part to special charges taken in the quarter.
In addition, early this year, AIG announced completion of a tender offer for shares of C.V. Starr & Co., another former affiliate that is headed by former AIG Chairman and CEO Maurice R. Greenberg.
In the release published on AIG's corporate web site, Mr. Sullivan said AIG’s results were also adversely affected by an additional allowance for losses in credit card operations in Taiwan of $57 million after tax, as well as a $38 million after tax adjustment related to deferred advertising costs in its general insurance operations.
Among other results, AIG reported an improved 89.2% combined ratio vs. 93.5% for the comparable period in 2005. A combined ratio above 100 indicates that a carrier is paying out more in claims and expenses than it is taking in premiums. Carriers often consider it a more appropriate indicator of company performance than earnings because earnings also include profits on the company’s investments. A company with a combined ratio higher than 100 can still be profitable because of investment income. AIG sits well in terms of the PC industry. According to Robert P. Hartwig PhD CPCU, Senior VP and Chief Economist of the Insurance Information Institute and published on 1/23/2006 in the Insurance Journal, the 2006 industry combined ratio is expected come in around 98. This compares to industry combined ratios of 105.3 in 2005 and 98.3 in 2004. AIG falls in below that number which is a good indicator of financial strength for the company, its shareholders and policyholders.
Business Insurance also reports that net premiums written increased 4.3% to $11.26 billion.
So there is a positive story in there if you read past the headline.
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