Signs of P&C Underwriting Weakness
AIG on Friday announced that its "preliminary estimate" of losses from Hurricane Sandy would be $2.0 billion, net of reinsurance, or $1.3 billion after taxes. The company also said it expected to contribute $1 billion in capital to its AIG Property Casualty unit, after the unit had paid $2.4 billion in dividends to the holding company through the first three quarters of 2012. AIG also said on Friday that the P&C unit had $49.6 billion in capital and that the parent company had total equity of $102.4 billion. So for AIG, Sandy is clearly "an earnings event, not a capital event," as Deutche Bank analyst Joshua Shanker wrote in a report on Monday. Sandy will wipe out AIG's fourth-quarter earnings, with Shanker estimating a net loss of 16 cents a share and lowering his 2012 EPS estimate to $3.77 from $4.10, while lowering his 2013 EPS estimate by a nickel to $3.45." Shanker said that the company's exposure to Sandy was "higher than we would expect," but also said that "a lack of gross loss detail could mean that AIG is reserving conservatively by reserving up to its retention, given the uncertainty still inherent from the event, and may result in favorable development in the future."