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AIG’s Consumer Insurance: Can It Improve on Personal Divisions?

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Consumer Insurance division

American International Group’s (AIG) Consumer Insurance division recorded a 17% fall in pre-tax operating earnings in 1Q16. The division’s pre-tax operating income fell to $788 million compared to $945 million in 1Q15.

The fall was primarily due to lower net investment income, which was due to the negative performance of alternative investments in hedge funds and a lower underwriting income in personal insurance. In the June quarter, investment income is expected to be subdued. But there might be a spike in personal insurance.

AIG is working on expense management and restructuring in order to boost its bottom line. Insurance companies such as MetLife (MET) and Hartford Financial Services Group (HIG) are focusing on reducing their operating expenses to improve profitability.

Investors can gain exposure to insurance companies by investing in financial sector ETFs such as the Financial Select Sector SPDR ETF (XLF) and the Vanguard Dividend Appreciation ETF (VIG).

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Personal Insurance division

AIG’s Personal Insurance division reported a pre-tax operating income of $222 million in 1Q16 compared to a pre-tax operating loss of $26 million in 1Q15. This was primarily due to a rise in underwriting results, partially offset by a decrease in net investment income.

Its combined ratio declined to 93.9. Its loss ratio and accident year loss ratio declined by 6.3 points and 3.2 points, respectively, to 52.5 and 53.2, respectively, compared to 1Q15.

Retirement Insurance division

AIG’s Retirement Insurance division saw pre-tax operating earnings of $461 million in 1Q16, a decline of 42%. The decline was primarily due to lower net investment income from alternative investments, partially offset by growth in premiums and deposits. The premiums expanded due to higher sales in Fixed Annuities, Retail Mutual Funds, and Group Retirement.

The growth in Fixed Annuities sales and lower Group Retirement surrenders were the primary drivers of the improvement in net flows of $1.7 billion.

Life Insurance division

AIG’s Life Insurance division saw pre-tax operating income of $105 million compared to an operating profit of $171 million in 1Q16. This decline was mainly due to lower investment income and higher amortization. The division’s results benefited from a $25 million reduction in the reserve for death claims related to enhanced claims practices.

In the next part of the series, we’ll take a look at AIG’s commercial insurance business.

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