AIG Continues to Take Cautious Approach to Excess D&O in North America

AIG Continues to Take Cautious Approach to Excess D&O in North America

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Though American International Group (AIG) saw a turnaround in underwriting income in the third quarter, driven largely by business in North America, the company’s chief executive said financial lines offset growth.

AIG’s third quarter underwriting income within its General Insurance segment was $611 million compared to $168 million during the same period a year ago. Underwriting income in North America for Q3 was $235 million – reversing a loss of $439 last year – led by a $292 million underwriting gain in commercial lines. But Q3 net premiums for North America commercial lines fell 8%.

Related: AIG General Insurance Income Up 82.7% in Q3 on North America Gains

CEO Peter Zaffino during an earnings call with analysts said North America financial lines premiums fell 11%.

“In North America financial lines, large-account public D&O remains competitive, as a result of excess capacity driven by new entrants to the market,” he said, adding that challenges in financial lines are specific to North America.

David McElroy, CEO of General Insurance, said AIG has taken a “cautious approach” to large-account public D&O business, particularly excess business.

“We’re aware of the consequences of chasing volume,” McElroy said. “We’ve seen companies go close to the the sun. They burn out out, where that’s our sophistication.”

McElroy said the primary market is stable, with no erosion in self-insured retentions – “sort of an acting hedge against legal inflation.” He the industry “did a great job” lowering limits from $25 million to $10 million or $15 million. However, “battles” are seen in tranches over $50 million.

“We’re seeing more competition there,” McElroy said. “What we’re going to do is what we’ve been doing – reducing limits, reducing our policy count.”

McElroy said that the marketplace may be “mistiming the pricing of excess layers.”

“The plaintiffs bar has circled back to large account securities class actions,” he said. “They’re actually up this year and looking more like the ’16 to ’19 cohort years, which are problematic for the industry versus the 2022 years.”

Zaffino said AIG remains confident in its financial lines approach, adding, “We have a global business with scale focused on underwriting profit over top line growth, which is reflected in the results this quarter.”

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