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Chartis forecasts pre-tax catastrophic loss of $1bn in Q1

American International Group (AIG) has said its property casualty insurance unit, Chartis, is expected to post a pre-tax insurance loss of $1bn in the first quarter of 2011, related to various catastrophe's including the recent earthquake in Japan.

The pre-tax insurance loss is related to various catastrophes, including a loss of $700m related to the recent earthquake in Japan, consequent tsunami, and related exposures.

Other catastrophe losses include the New Zealand earthquake, US winter storms, northeast Australian floods, Cyclone Yasi, and the Brazil floods that occured during the the first quarter to date.

AIG said that the preliminary estimate excludes losses arising from its general insurance operations in Japan that participate in the Japanese Earthquake Reinsurance Company (JERC), which is the exclusive provider of earthquake coverage for personal dwellings and their contents in Japan.

The general insurance operations of AIG in Japan have previously set up catastrophe reserves of approximately $500m for potential claims associated with earthquake damage to personal dwellings and have deposited funds for a substantial portion of these reserves with the JERC.

The maximum US GAAP pre-tax loss that AIG general insurance operations in Japan can incur from claims associated with earthquake damage to personal dwellings is approximately $575m, including such claims filed with Fuji Fire and Marine Insurance, in which AIG holds a 54.66% equity stake and whose financial results are consolidated in AIG’s financial statements.

AIG president and COE Robert Benmosche said that the catastrophe in Japan has affected people, their homes, infrastructure, and businesses both in and outside of Japan, and the industry is working hard to quantify the complex impact of the devastation, a process that will take some time.

"As a result, our preliminary loss estimate will change as the industry losses from JERC for earthquake damage to personal dwellings become known and other information becomes available as the situation in the quarter evolves. Our preliminary estimate is based on our current assessment of what our policies cover and the provisions of reinsurance purchased by AIG and its affiliates," Benmosche said.