Insurance giant AIG reported a worse than expected quarterly loss of $3bn after having to ramp up reserves to cover possible claims against commercial policies it has already written.
The group said it had set aside an additional $5.6bn in its fourth quarter trading statement, published overnight.
AIG also revealed plans for a $3.5bn share buyback, but this failed to assuage investor concerns, with shares falling over 4.5 per cent in after-hours trading, dropping as low as $63.75 per share.
Shares had climbed over 12 per cent since the election of US President Donald Trump.
The amount capital AIG needs to hold to cover commercial insurance is not a new headache for the firm. At the same point last year it increased reserves by $3.6bn to cover legacy issues and tried to nip the problems in the bud last month by offloading a bundle commercial insurance risk to Warren Buffet’s Berkshire Hathaway in a deal that cost the AIG $10.2bn.
Stable
AIG is halfway through its two-year turnaround plan and its chief executive Peter Hancock told CNBC he expects the the firm’s earnings to be “a lot more stable” in the future.
“This is a manageable adjustment to our reserves and radically reduces the uncertainty around the book value of the company and gives us more secure earnings going forward,” he said.
The changes to AIG’s reserves include bolster of reserves against US casualty losses, because, Hancock said, there have been “a lot more accidents [and] they have been more severe”. Tin hats allround…
Source: City A.M.