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American International Group, Inc. Message Board

  • combined_ratio combined_ratio Nov 2, 2013 2:54 PM Flag

    Not Adequately Reserved

    IMO, AIG's p-c insurance subsidiary has not established sufficient loss reserves. That is why when other good p-c insurers in the 3Q, e.g., Chubb, Travelers, RLI, ACE, PartnerRe, Aspen, are posting loss reserve releases, AIG continues to record adverse development. This short changing of loss reserves will ultimately catch up to the company, since it cannot adequately price its product if it doesn't know the underlying claims potential. Good p-c insurers establish conservative loss reserves and release the redundancy very slowly over time to protect against adverse claims trends that are impossible to predict. This obviously isn't the case with AIG. Consequently, IMO there is ample justification for these shares to sell at a significant discount to stated and tangible book value over and above its inability to earn its cost of capital.

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    • Typically you will say so smart things right now what you're saying is absolutely idiotic idiotic

    • I agree. I think AIG is really giving their 50% confidence estimate but that can be dangerous in insurance and it can have a great effect on the valuation story. Many estimate there reserves much more conservatively

    • From Conference Call

      Our reserves remain stable and net adverse development was $72 million in the quarter compared to $145 million a year ago, a benign level given our $63-plus billion of reserves overall.

      Sentiment: Strong Buy

    • I worked at AIG a couple of years ago. The Federal Reserve has 6 full time employees who work solely on monitoring AIG's books. Trust me, they are not under reserving.

      • 2 Replies to kmcmahon38
      • As someone who has spent his whole career in the p-c insurance world, people from the Federal Reserve cannot dictate how a re/insurer should establish appropriate loss reserves. I suspect the government is advocating that AIG management use reserve levels that provide 50% levels of confidence. IMO, this is crazy and will lead to major problems over any reasonable length of time. Claims distributions for p-c insurance exposures are (1) not symmetric distributions, and (2) are highly dynamic over time. Insurance companies need to build into their loss reserves the same level of conservatism that they should have in their capital structure. Just look what is happening to such p-c insurers today such as Towers and Meadowbrook. Don't think it can't happen to a BIG entity such as AIG.

      • if you worked at aig you know they are the thief of the world with corrupt management.
        it's unfortunate that government has reached such low levels that they are now running companies that should have bankrupt year ago, or should have been investigated and shut sown.

    • I addressed this in my "take away" thread. I don't think most of us longs think AIG could or would "game" their reserves. AIG isn't out of the woods, but they are legit. They can't afford to play the games you're accusing them of.

      Sentiment: Buy

60.32+0.32(+0.53%)Oct 24 4:00 PMEDT