By David Bull

May 2 - (The Insurer) - Lexington was the biggest driver of the 14% net premium written $(NPW.SI)$ growth recorded by AIG’s North America commercial insurance division in Q1, with the wholesale-only unit growing by 23% led by a 27% expansion in casualty.

AIG chairman and CEO Peter Zaffino provided the detail on Lexington’s top-line performance during the carrier’s quarterly earnings call on Friday, after it reported an earnings beat on Thursday evening.

As previously reported, the insurer generated $1.17 per diluted share of adjusted after-tax income, topping the consensus estimate of $1.00, with an underlying combined ratio of 87.8% in its general insurance business that it described as its best first-quarter result since the financial crisis.

Investors responded favourably to the performance with AIG shares trading up 1% at just before 10.30 a.m. ET in New York.

Zaffino described another quarter of “strong premium growth” overall, with NPW up 8% year on year to $4.5 billion, led by 10% growth in commercial.

At Lexington, submissions were up 30% year on year, which followed an increase of more than 50% in the first quarter of 2024.

“This increase in submission activity was primarily driven by middle-market casualty and property, which together represented two-thirds of the total submissions received,” said Zaffino.

He added that MGA platform Glatfelter contributed 16% growth while retail property NPW increased more than 40%, which he attributed to the “significant enhancements” of AIG’s reinsurance structures.

The effect of AIG’s reinsurance strategy on its quarterly results was also highlighted in the context of industry catastrophe losses that Zaffino noted were the second highest on record for a first quarter.

Despite this, the executive said AIG’s net retained cat losses are expected to be within expectations for 2025, “largely based on our reinsurance structures”.

Based on its current loss projections for wildfire losses in Q1 in relation to its aggregate reinsurance protection, the insurer has around $35 million net of annual aggregate deductible remaining for all other perils in North America, excluding wind and quake.

It also has “significant” property cat occurrence limit available to it for the rest of the year.

EXCESS CASUALTY RATES UP 16%

As well as driving top-line growth at Lexington, casualty – specifically excess casualty – was the driver of rate in the first quarter.

Excess casualty rate increases were at 16% in North America, with Zaffino noting that the class has generated double-digit increases in each of the last five calendar years with cumulative rate above loss trend.

Glatfelter had a 6% rate rise overall, but the increases were offset by decrease of 5% in financial lines, 7% in retail property and 10% for Lexington property.

In financial lines, Zaffino said the company has repositioned its portfolio for the best risk-adjusted returns “even in a competitive market”.

It has “meaningfully” reduced its excess capacity, where pricing is “increasingly commoditised”, and focused on primary business where it has a “differentiated offering and a leadership position”.

AIG’s financial lines portfolio has gone from representing 30% of its North America commercial NPW in 2021 to 19% of the portfolio today.

PROPERTY PRICING REMAINS ‘ABOVE TECHNICAL VIEW’

Zaffino also sought to put the current softening being seen in the retail and E&S property market into context.

“Over the past five years, we have had cumulative rate increases of 113% in retail property and 96% in wholesale property. Pricing continues to be above our technical view. Nonetheless, we continue to be very disciplined and we’ll monitor market conditions throughout the year,” he said.

He also highlighted the company’s use of reinsurance, as a “cost of goods sold approach”, embedding the cost into the pricing of its primary product.

“Our property reinsurance risk-adjusted reductions are greater than what we’re seeing on the retail side, I think that’s an important point,” he said.

The executive described international as a more balanced environment, with casualty rates up 7%, property up 2%, global specialty down 1%, and financial lines down 3%.