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AIG – profits and reserves

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.

5 thoughts on “AIG – profits and reserves”

  1. Joe: What is your reading on AIG’s problems in submitting data to rating bureaus in MA and OK? Is the inadequate data related to their performance? Do they really know how they are doing?
    Just wondering.

  2. AIG for the first time in a long time looks like a good investment. They have focused on adjusting reserves by business unit which has imporved balance sheet. They have lots of cash and have committed to increasing the dividend I think by 20%. I am buying AIG on market dips. FWIW

  3. Jon – this is just a guess. AIG’s IT infrastructure has never been a priority for the company. They have encountered problems with medical bill repricing, systems conversions, and state reporting on the WC business.
    This may be a result of that under-investment.
    Of course, that begs the question – if they can’t report to the states, do they have enough information to stay on top of their business?
    Given their historical performance, I’d say they probably do.
    But, that’s just a guess.

  4. AIG is renoun in my industry for not paying vendors and/or professionals in a timely matter. So you may want to watch their 3 quarters, it seems they have a rythem of paying every 8 months or so ( no wonder they look like they have money)

  5. We submitted our vendor bill to AIG 2 months, their prior TPA had the bill for 2 months. The claim rep, AIG, said 2 months ago that it will be paid. She has noy returned our call of 7 days ago and the invoice is approaching 90 days. Any suggestions?

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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