Insurance giant AIG suffers $11 billion yearly loss
Insurance giant American International Group said Friday that it lost about $11??billion last year, surprising analysts and showing the long-term risks inherent in the types of large, complex insurance coverage that the company once pioneered.
Of the company’s $11 billion total loss for the year, $2.7 billion on a pretax basis resulted from its decision to increase its reserves for paying future claims. This indicated AIG has been receiving significantly larger claims than it anticipated when it first sold the insurance, most of it more than seven years ago.
Fitch Ratings responded by putting the company’s property and casualty subsidiaries on a negative watch for their financial strength ratings. Those ratings are indicators of an insurer’s ability to pay claims, and are separate from credit ratings.
AIG officials said claims were growing faster than reserves in just two lines of insurance and that it still had resources to pay all claims.
AIG’s chief executive, Robert Benmosche, said in a statement that despite the losses, “Our team has made great progress during the year in executing our strategic restructuring plan.”
The plan involves shrinking the vast company to a more manageable size and producing money to pay back its rescue loans from the federal government.
Benmosche also cited a rebound in the annuities sold by its renamed life insurance companies as a bright spot.
The insurer’s year-end result was just a small fraction of the record-breaking loss of $100 billion that it reported for 2008, when its derivatives portfolio blew up, leading to a government bailout.
Much of the 2009 loss came from a fourth-quarter charge taken to reflect that its bailout had been restructured. That charge was not connected with the company’s core insurance operations.
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Tags: Insurance