American International Group, Inc. (AIG) today reported a net loss for the first quarter of 2009 of $4.35 billion compared to a net loss of $7.81 billion in the first quarter of 2008.
The loss was less than the $5 billion estimate reported earlier and much lower than the record $60 billion hit it took in the fourth quarter of last year. On an adjusted basis, AIG was earlier expected to post an adjusted first- quarter loss of about $2.4 billion, which comes to a little less than 90 cents per share, the source said.
On an adjusted basis, excluding net realized capital gains (losses) and FAS 133
gains (losses), net of tax, the first quarter 2009 net loss was $1.60 billion, compared to an adjusted net loss of $3.56 billion in the first quarter of 2008.
AIG said the first quarter 2009 net loss resulted primarily from a number of restructuring and market disruption-related charges and accounting charges related to taxes.
Commenting on first quarter 2009 results, AIG Chairman and Chief Executive Officer Edward M. Liddy said, “AIG’s first quarter 2009 results reflect our efforts, with the ongoing support of the Federal Reserve and the U.S. Treasury, to execute on our plans which were designed to maximize the value of our core businesses and repay U.S. taxpayers.”
Liddy said the company is making progress on winding down its financial product business, AIGFP. As of March 31, 2009 its portfolio had a notional value of approximately $1.5 trillion, down from about $2.7 trillion at Dec. 31, 2007.
He said the efforts to position its insurance companies as discrete businesses is moving forward. On April 21, 2009, AIG announced an acceleration of steps to position AIU Holdings as a distinct brand by transferring it to a special purpose vehicle (SPV) in preparation for the potential sale of a minority stake in the business, which ultimately may include a public offering of shares, depending on market conditions.
AIU Holdings is to serve as the holding company for AIG’s Commercial Insurance, Foreign General Insurance, and Private Client Group units. AIG also announced that it intends to purchase the equity interests in International Lease Finance Corporation, United Guaranty Corporation, and Transatlantic Holdings, Inc., from AIU Holdings.
Also, since year end, AIG has managed to close on a number of transactions and reached several asset sales agreements. These include the pending sale of its U.S. personal auto business, 21st Century, to Farmers Insurance.
GENERAL INSURANCE RESULTS
General Insurance first quarter 2009 operating income before net realized capital losses was $446 million, compared to $1.6 billion in the first quarter of 2008. The first quarter’s results reflect $483 million in operating losses at United Guaranty Corp. (UGC) and a decline in net investment income, primarily due to losses from partnership and mutual fund investments.
General Insurance net premiums written were $10.0 billion in the first quarter of 2009, a 17.5 percent decline compared to the last year’s first quarter. Commercial Insurance reported net premiums written during the first quarter of 2009 of $4.2 billion, an 18.3 percent decline from the first quarter of 2008. AIG said the decline was driven by the effect of the economic downturn on construction, real estate and transportation-related business and Commercial Insurance’s deliberate strategy to remain price disciplined in workers’
compensation, as well as changes in the amount of premiums ceded to reinsurers. Aside from the effect of these three items, net premiums written declined approximately 6 percent.
Net premiums written were also adversely affected by the negative AIG publicity and the broader impact of the economy, which the insurer said is decreasing ratable exposures on renewal business and limiting new opportunities across other lines of business.
The company reported that retention of existing business was “moderately lower” than in the comparable prior year period, with some de-risking among clients, although retention levels have “shown
improvement” since the end of the first quarter of 2009.
Overall, rates in Commercial Insurance were essentially flat in the first quarter of 2009 compared to the first quarter of 2008. The stabilization of rates is an improvement from the fourth quarter of 2008 and reflects the current market conditions, according to the company.
Foreign General net premiums written in the first quarter of 2009 were $3.6 billion, a 10.3 percent decline in original currency, or 18.1 percent including the effect of foreign exchange. Excluding the effect of Unibanco, which was sold in November 2008, Foreign General net premiums written in the first quarter of 2009 declined by 4.5 percent for continuing operations in original currency, or a 12.8 percent decline including the negative impact of foreign exchange.
In Foreign General’s commercial business, renewal retention was “solid” while rates showed continued improvement, offset by reductions in insured’s values, payrolls, sales and inventories. There was also “expected de-risking among commercial customers to further diversify their portfolios as well as a slight reduction in new business production.” In particular, Foreign General’s European operations delivered “strong client retention results” during their critical January 1 renewal period.
AIG Private Client Group reported first quarter 2009 net premiums written of $210 million, a decrease of 2.3 percent compared to first quarter of 2008.
At March 31, 2009, General Insurance net loss and loss adjustment reserves totaled $72.3 billion, a decline of $201 million from December 31, 2008. The foreign exchange effect for the first quarter of 2009 was a reduction of reserves of $290 million. Reserves were also reduced by $287 million due to dispositions. For the first quarter of 2009, net adverse loss development from prior accident years, excluding accretion of loss reserve discount, was $64 million. The overall adverse development consisted of approximately $131 million of favorable development from accident years 2003 through 2008, offset by approximately $195 million of adverse development from earlier accident years.
LIFE INSURANCE & RETIREMENT SERVICES
Life Insurance & Retirement Services first quarter 2009 operating income before net realized capital gains (losses) was $1.2 billion reflecting a continued difficult operating environment.
The first quarter results included deferred acquisition cost (DAC)
In AIG’s Foreign Life & Retirement Services operations, sales activity has stabilized in most regions, though sales and surrender activity in foreign investment-oriented life and retirement products, especially in Japan and Korea, remain affected due to equity market
performance. Domestic Retirement Services new business has slowed principally due to several distribution partners and plan sponsors suspending or de-emphasizing sales of AIG
products pending clarification of the future ownership of these businesses. Similarly, the sales outlook in Domestic Life Insurance continues to remain challenging due to the current economic environment, current ratings and the negative press surrounding AIG.
Financial Services reported a $1.1 billion operating loss before net realized capital gains (losses) and the effect of FAS 133 in the first quarter of 2009, compared to an $8.5 billion operating loss in the first quarter of 2008.
AIGFP, which is in the process of winding down its businesses and portfolios, reported a $1.1 billion operating loss in the first quarter of 2009 compared to $8.9 billion in the first quarter of 2008. The first quarter 2009 operating loss included a $452 million in unrealized market valuation losses on its super senior credit default swap portfolio, $933 million of interest charges on intercompany borrowings with AIG that are eliminated in consolidation, and the effect on operating results related to the continued unwinding of the
AIGFP business. These items were partially offset by a $1.7 billion favorable credit valuation adjustment.
International Lease Finance Corporation (ILFC) reported a 16.2 percent increase in operating income to $316 million, compared to $272 million in the first quarter of 2008, driven primarily by a larger aircraft fleet and lower composite borrowing rates compared to
the first quarter of 2008.
American General Finance, Inc. (AGF) reported a first quarter 2009 operating loss of $203 million compared to operating income of $11 million in the first quarter of 2008, primarily due to a $186 million increase in the provision for finance receivable losses in
response to higher levels of delinquencies and net charge offs.
Completed Asset Sales:
• AIG PhilAm Savings Bank, PhilAm Auto Financing and Leasing, and PFL Holdings to EastWest Banking Corporation for $43 million, on March 12, 2009.
• Hartford Steam Boiler (HSB) to the Munich Re Group for $739 million, plus the assumption of $76 million of outstanding HSB capital securities, on March 31, 2009.
• AIG Life Insurance Company of Canada to BMO Financial Group for $263 million, on April 1, 2009.
• AIG Retail Bank Public Company Limited and its credit card operation, AIG Card (Thailand) Company Limited, in Thailand to Bank of Ayudhya Public Company Limited for approximately $45 million, plus the repayment of intra-group indebtedness of approximately $495 million, on April 8, 2009.
• AIG Private Bank Ltd. (AIG Private Bank) to a subsidiary of Aabar Investments PJSC (Aabar), a global investment company based in Abu Dhabi, for approximately $253 million for the entire share capital of AIG Private Bank. Aabar also purchased and assumed approximately $55 million of intra-company loans outstanding to AIG Private Bank, on April 16, 2009.
• Deutsche Versicherungs-und Rückversicherungs-Aktiengesellschaft (Darag), a German general insurance subsidiary of AIG affiliate Württembergische und Badische Versicherungs-AG (WüBa) in Germany, to Augur for approximately $26 million on April 24, 2009.
• On April 16, 2009, AIG announced an agreement to sell 21st Century Insurance Group, to the Farmers Group, Inc. (FGI), a subsidiary of Zurich Financial Services. Under the terms of the transaction, FGI will pay AIG $1.9 billion, consisting of $1.5 billion in cash and $400 million in face amount of subordinated, euro-denominated capital notes backed by Zurich Insurance Company, Zurich’s principal operating unit. FGI will also assume 21st Century’s outstanding debt of $100 million.
Additionally, AIG said it continues to examine the feasibility of combining its Domestic Life Insurance & Retirement Services businesses.
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