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Insurance question


prunes
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The AIG thread is dead these days so I figured I might cross post my question to the broader forum.

 

A common criticism of AIG I see is that it historically underpriced and underreserved its property & casualty business. It is true that the company's initial estimates of reserves were inadequate. However, this appears largely due  to its exposure to business lines with long tail risk and that are difficult to price: excess worker's comp and casualty, D&O, etc., in addition to continued payments owed on asbestos contracts written some 25 years ago.

 

My question is as follows. Assuming it is true that AIG is shifting to business with less tail risk (and assuming that it reserves its remaining lines properly), eventually you should see the numbers begin to improve as the losses associated with this tail risk phase out. How does one determine the "half life" of these bad contracts AIG wrote? I checked the financials but didn't see a disclosure related to this (although it is likely I might have missed it).

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I dont know AIG specific.  For durations you could look at Fairfax's rpts since 1998 when they bought TIG which was subsequently put in runoff.  Workers comp is extremely long tail.  FFH commuted - bought out-some of those contracts to close them permanently.  The rest is mostly run down after 12 years but is a sort of near permanent small drag.

 

Again, not knowing AIG very well , but knowing they have a huge Life business.  With brutally low interest rates this business is going to struggle for a while.  The lifecos all tanked after the Twist.

 

I think AIG is literally the most complex entity in existence.  I wouldn't touch it.  BB will do all right but then he hires consultants to study various facets of the business and has a much better grasp of banks and insurance than most anyone else. 

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