The financial reporting season for publicly traded companies using the calendar year is just about over. AIG’s numbers look rather good, with a 34.1% improvement in net profits on revenue growth of 3.9%. Sure, the company has had its struggles with regulators, but the overall results are quite impressive.
The increase in profits came on the heels of a $1.8 billion increase in reserves for workers comp claims over 2005. The reserves were bumped up despite an improvement in the loss ratio for the DBG operation (domestic business group, the home of most of AIG’s work comp business) from 82.5% in 2005 to 69.1% in 2006.
One analyst believes there is a link between the financial data, AIG’s improved profit picture, and anecdotal information that the company has “stopped paying claims”.
I don’t see it.
WC loss ratios have been improving for several years, and it is entirely possible that AIG has not changed its reserving practices, but has learned a lesson from the late nineties and is socking away extra dollars in case work comp medical inflation jumps back into the teens.