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Stock Analyst Update

AIG Will Take a Catastrophe Hit in 3Q

Hurricanes and other disasters resulted in $1.5 billion in catastrophe losses for the insurer.

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 American International Group (AIG) announced that it expects to record $1.5 billion to $1.7 billion in net catastrophe losses for the third quarter. The bulk of these losses ($900 million to $1 billion) relate to multiple events in Japan during the quarter, but Hurricane Florence and California mudslides were also an issue. Meanwhile, the company’s estimate for losses related to Hurricane Michael, which will be included in fourth-quarter results, is $300 million to $500 million. Looking over the details of this year’s hurricane season, as well as results and comments from other insurers, our sense is that this will be another year of relatively high catastrophe losses domestically, although not as bad as last year. AIG’s estimate falls in line with that take, and we would note that occasional large catastrophe losses are inherent to the company and industry’s operations, which we tend to forecast in our models. Still, it is a bit discouraging to see the company take such a large hit, given that CEO Brian Duperreault has attempted to more actively use reinsurance to limit the company’s catastrophe exposure. To that end, though, AIG did note that, after Hurricane Michael, it believes it will exhaust its North American catastrophe retention, so its programs do appear to have potentially put a bit of a cap on domestic losses this year. We will maintain our $76 fair value estimate and no-moat rating.

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Brett Horn does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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