Wildfire related payouts totaled $460 million as the insurance sector overall deals with increased claims due to natural disasters.
American International Group Inc. (AIG) revealed a decline in first-quarter profits Thursday, citing considerable payouts stemming from the Los Angeles County wildfires in January.
The multinational finance and insurance corporation reported $525 million in total catastrophe-related charges in the quarter, with $460 million of those losses a direct result of the Los Angeles County fires, in which at least 30 lives were lost and more than 16,000 buildings were destroyed.
The wildfires rank among the costliest in the history of California. The insurance industry’s losses amount to an estimated $40 billion, reported Swiss Re, a reinsurance firm. UCLA’s Anderson School of Management estimates the total property and capital losses could reach $131 billion.
AIG initially projected wildfire net losses to reach $500 million.
“While the broader macroeconomic and geopolitical environment remains uncertain, AIG is navigating these challenges from a position of strength,” CEO Peter Zaffino said in a statement.
AIG’s general insurance net premiums written held steady at $4.5 billion, marking no change from the year prior, though up 8 percent when adjusted for comparability, a measure that reflects the sale of AIG’s travel business last year.
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The insurance sector overall is dealing with increased claims due to natural disasters. Global insured losses from hurricanes, floods, and wildfires are estimated to approach $145 billion in 2025 after coming in at $137 billion last year, according to Swiss Re.
Meanwhile, homeowners in high-risk areas, such as the wildfire-ravaged Pacific Palisades, also face increasing premiums or policy nonrenewals. State Farm is currently asking the state of California to approve a premium hike.
California Insurance Commissioner Ricardo Lara imposed a one-year moratorium on policy cancellations in affected areas.
AIG’s stock was up 3.5 percent on Friday, closing at $83.66. It’s up nearly 15 percent year to date.
AIG has a 1 percent share of the California market. The company with the largest share is State Farm, at nearly 9 percent.
In 2022, AIG withdrew from writing new admitted, or standard, homeowners policies, citing the unprofitability and regulatory constraints in the market, as reported by ratings firm S&P Global. It would continue underwriting surplus line policies, which usually cover high-risk businesses.
“The regulatory model for surplus lines carriers tends not to be as strict as the framework for admitted carriers, which affords [surplus lines carriers] greater flexibility in setting premium rates and terms for its policies,” wrote analyst Jason Woleben.
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