Remembering a day before AIG ran into problems in the financial crisis, Sandler O'Neill's Paul Newsome says the insurer's competitive advantage was having a lower expense ratio than peers (while maintaining an average loss ratio). Noting improvement in the loss ratio, but an expense ratio higher than peers, Newsome asks AIG management (CC transcript) if low expenses is still a goal.
Responding, CEO Bob Benmosche says the company wants to be competitive on both fronts, but it takes time and investment. "We're building this company not only for 2014, but for 2018 and 2020."
AIG P&C boss Peter Hancock says loss and expense ratios are outcomes of doing good business, and not necessarily goals or competitive advantages. "Our competitive advantage comes by the expertise that we have and the risks that we take ourselves or help our customers to manage if they choose to retain them ... The investments that we’re making are to become true experts in the risk that we’ve chosen to specialize in around the world." Expect a higher expense ratio than the past, he says, but reminds historical expense ratios are "flattered" by reinsurance strategies no longer in place on the same scale anymore.
The stock remains under pressure following last night's earnings, down 1.4%.