AIG to take a $700-mn hit on Japanese claims
19 March 2011
American International Group (AIG), one of the world's largest insurers, expects to post $1 billion in pre-tax catastrophe losses in the first quarter of the current fiscal, including about $700 million in pre-tax claims costs from the earthquake and tsunami in Japan.
The insurer, which had been crippled following the global financial crisis, was bailed out by the US government, which injected a whopping $182 billion in a bailout package. The US Treasury has a 92-per cent stake in the company now, but wants to start off-loading its holdings from May.
AIG announced on Friday that 70 per cent of its pre-tax losses (mainly in the books of Chartis, its property-casualty unit) in the first quarter come from the March 11 earthquake and tsunami in Japan and the rest from other natural disasters including the quake in New Zealand, flooding in Australia and Brazil and winter storms in the US.
But the loss figure could change as its exposure to the Japanese Earthquake Reinsurance Company (JERC) became clearer. AIG has already taken catastrophe reserves of $500 million in Japan for claims through the JERC and the maximum pre-tax loss it could incur for such claims was $575 million.
The JERC is the exclusive provider of earthquake cover for homeowners' properties in Japan. As per Japanese accounting rules, AIG had to establish catastrophe reserves of about $500 million for potential claims in relation to earthquake damage of homes.
''The catastrophe in Japan has affected people, their homes, infrastructure, and businesses both in and outside of Japan,'' said Robert Benmosche, president and CEO, AIG. ''Our industry is working hard to quantify the complex impact of the devastation, a process that will take some time.''