American International Group has seen its share price increase after it was revealed that the business has limited its exposure to interruption losses.

This has caused shares to rise by 9.3 percent, although the corporation has still seen significant losses due to the spread of COVID-19. [Bloomberg]

This has brought up the topic of business-interruptions losses and insurance. This is especially pertinent as many businesses across the United States have been forced to stop operations. [CNBC]

The ongoing COVID-19 outbreak and the subsequent closure of businesses have led to catastrophic losses on the part of AIG, according to CEO Brian Duperreault. In a conference call, AIG President Peter Zaffino stated that the company’s policies have provisions for such situations.

The provisions in question include exclusions for losses related to viruses, and otherwise require proving that the virus caused direct physical loss or damage that was the cause of the business interruption.

Business-Interruptions Coverage Under Scrutiny

Zaffino stated that he is confident that these terms will be upheld if it is formally challenged. AIG is not the only company in this situation as Wimbledon has famously spent millions on pandemic insurance for years. [Wimbledon Times]

The current situation, while plausible, was statistically unlikely up until now.

This has led to many insurance companies reviewing policies in order to determine their exposure to COVID-19 losses. Duperreault, declared this to be the biggest catastrophe loss ever, and firms have even taken to suing their insurers over coverages.

The days following these events offered some tentative optimism, AIG shares saw a surge on May 7, 2020, with the price standing at $25.52 at the time of publishing. Duperreault, on his part, has declared that AIG has a good track record of risk management and that this will continue even as the COVID-19 outbreak is dealt with.

AIG Loses Millions Due to COVID-19

Despite the good news, AIG has taken a significant hit in the first quarter due to the outbreak. Their pre-tax losses for the first quarter were $272 million and can be traced to the effects of the virus on travel, commercial property, trade, and so on. This has led to an $87 million underwriting loss.

Previously-issued guidance such as a 10 percent return on commodity equity has been withdrawn, especially in light of the total $419 million loss in the first quarter. While the current situation is described as the largest catastrophe AIG has ever faced, some improvements can be recorded in the property and casualty sector. Furthermore, the life and retirement sector has remained steady.

While the company has had to make some concessions, such as shutting down their ‘Blackboard’ unit, it remains confident that it will survive these trying times. [The Insurer]