AIG’s Q1 2025 Earnings: A Mixed Bag of Growth and Headwinds

American International Group (AIG) reported its Q1 2025 earnings, revealing a profit decline driven by catastrophic losses and structural challenges, but also showcasing resilience through strong commercial insurance growth and strategic investments. While adjusted after-tax income fell to $702 million—a 41% drop from $1.2 billion in Q1 2024—the results underscore a company navigating both external shocks and internal transformation.

Key Financials: Growth vs. Catastrophic Setbacks

• Net Premiums Surge: Global net premiums written rose 8% to $4.5 billion, with North America commercial insurance leading with 14% growth. Lexington Casualty’s 27% premium increase highlighted AIG’s dominance in casualty underwriting.
• Catastrophe Drag: California wildfires caused $520 million in losses, pushing the calendar year combined ratio to 95.8%. This contrasts with the underlying accident-year ratio of 87.8%, which management called “exceptionally strong.”
• Capital Returns: AIG returned $2.5 billion to shareholders, including a 12.5% dividend hike to $0.45 per share, while maintaining a robust $4.9 billion in liquidity.

Positive Developments: Growth and Innovation

1. Commercial Insurance Momentum: North America’s 14% premium growth signals demand for AIG’s underwriting discipline. The TATA Group partnership in India, projected to grow at a 20% CAGR through 2030, adds emerging market tailwinds.
2. GenAI Integration: CEO Peter Zaffino emphasized progress in deploying generative AI (GenAI) for underwriting and risk assessment, with validation from partners like Palantir. This tech push aims to cut costs and improve risk pricing over the long term.
3. Cost Efficiency: The General Insurance expense ratio improved to 30.5%, down from 31.8% in 2024, reflecting operational streamlining.

Challenges: Pricing Pressures and Book Value Decline

• Pricing Headwinds: Financial lines saw mid-single-digit rate declines, while property pricing faced “headwinds” despite rates remaining above technical adequacy. Casualty business mix shifts (higher-loss ratio lines) added to loss ratio pressures.
• Tangible Book Value Drop: Adjusted tangible book value per share fell 8% to $67.96 due to Corebridge’s deconsolidation, though total book value rose 10% to $71.38. This highlights the accounting impact of strategic exits.
• Expense Pressures: International commercial insurance’s expense ratio rose 130 basis points, signaling cost management challenges outside North America.

Management’s Playbook: Capital Discipline and Strategic Focus

• M&A Strategy: AIG remains selective, prioritizing “medium-to-long-term opportunities” that align with core businesses. If no deals materialize, capital will flow back to shareholders via buybacks.
• Risk Mitigation: Reinsurance and risk margins are being used to offset inflation and tariff-related uncertainties, particularly in property lines.
• Debt Management: The debt-to-total capital ratio stayed low at 17.1%, underscoring financial flexibility.

Conclusion: AIG’s Long-Term Outlook Remains Intact

While AIG’s Q1 2025 results reflect short-term volatility—driven by one-time catastrophes and structural shifts—the company’s fundamentals remain robust. Strong commercial insurance growth, GenAI-driven operational improvements, and disciplined capital returns position AIG to recover.

The key metrics to watch:
- Premium Growth: North America’s 14% rise and India’s 20% CAGR provide growth anchors.
- Expense Ratio: The 30.5% General Insurance figure signals efficiency gains.
- Combined Ratio: The 87.8% accident-year ratio highlights underwriting discipline, despite calendar-year pressures.

Investors should focus on AIG’s strategic execution, particularly in scaling GenAI and managing catastrophe exposure. While the 41% profit decline is notable, it’s largely attributable to one-off events. With a 10% rise in total book value and $7.1 billion remaining in buyback authorization, AIG’s long-term trajectory remains promising for risk-aware investors.

Final Take: AIG’s Q1 results are a snapshot of a company navigating cyclical risks while investing in its future. The path to sustained profitability will hinge on stabilizing loss ratios and capitalizing on tech-driven efficiencies.