American International Group may be a shadow of its former self but for the second straight quarter it has posted a profit.
AIG reported net income of $455 million. Third quarter 2009 adjusted net income was $1.9 billion, compared to an adjusted net loss of $9.2 billion in the third quarter of 2008.
AIG cited the stabilization of certain of its units and a rise in the value of its investments as the main factors in its recovery.
Comparing AIG’s earnings for the third quarter 2009 with Q3 2008 is difficult due to the $180 billion government bailout, a 20 for 1 reverse stock split, and government ownership of approximately 80 percent of the company, as well as the fact it has sold a number of its individual units.
Recently installed President and CEO Robert H. Benmosche described the results as reflecting the “continued stabilization in performance and market trends.”
Benmosche said AIG’s executives are carefully monitoring commercial rates, and that AIGFP – the investment unit that triggered the company’s deterioration – had been restructured. As a result, he said, “virtually all key risk measures are down significantly and the earnings again benefited from a positive unrealized market valuation gain on the Super Senior Credit Default Swap portfolio.”
Just how large AIGFP’s commitments were was explained in a later entry of the earnings report, which noted that the unit had reduced the notional amount of its derivative portfolio by 28 percent from approximately $1.6 trillion at Dec. 31, 2008, to approximately $1.1 trillion at Sept. 30, 2009. During the third quarter of 2009, the derivative portfolio was reduced 13 percent from approximately $1.3 trillion at June 30, 2009.
Benmosche did warn, however, that while AIG remains focused on “stabilizing and strengthening” its businesses,” there will be future “volatility in reported results in the coming quarters, due in part to charges related to ongoing restructuring activities.
The stabilization initiatives have borne fruit. As of Sept. 30, 2009 AIG’s total equity was $76.5 billion, a $14.4 billion increase from $62.1 billion at June 30, 2009. The company said the increase includes $455 million of net income attributable to AIG, $12.1 billion of unrealized appreciation of investments, $2.1 billion from a draw-down of the Department of the Treasury commitment related to the Series F Fixed Rate Non-Cumulative Preferred Stock, partially offset by a $350 million reduction in non-controlling interests.
AIG rebranded its insurance business as Chartis last July. AIG reported that the division posted operating income before net realized capital gains (losses) of $722 million in the third quarter of 2009, compared to $105 million in the third quarter of 2008, reflecting improvement of $612 million in net investment income, primarily due to positive partnership income. Third quarter 2009 underwriting losses were primarily driven by credit crisis related claims and continued adverse development of prior accident year loss reserves. Third quarter 2008 underwriting losses were primarily driven by catastrophe losses.
General Insurance recorded net premiums written of $8.1 billion in the third quarter of 2009, a 13 percent decline compared to last year’s third quarter. AIG said the decrease was partially due to the effect of foreign exchange, the sale in 2008 of the unit’s Brazilian operations, and “the strategic decision to remain price disciplined, particularly in workers’ compensation, as well as to the overall effect of the weakened economy.”
There were positive signs of recovery. AIG noted that business retention was at its highest level since September of 2008, new business written exceeded $1.1 billion for the quarter, and pricing remained stable.
AIG’s overall combined ratio rose during the third quarter: 105.2 for general insurance; 106.4 for commercial insurance and 103.4 for foreign general insurance. The nine month figures, however, are better: 97.5 for general insurance; 98 for commercial insurance, and 96.5 for foreign general insurance.
The full report is available on the group’s web site at: www.aigcorporate.com.
Source: American International Group