AIG Posts $1.5B Net Income in Q1; Chartis Sees 1.1% Drop in Premiums

By | May 7, 2010

American International Group Inc. turned a quarterly profit after a year-ago loss as the bailed-out insurer got a boost from its investments and general insurance operations appeared to stabilize.

Chartis, the general insurance business, saw net premiums decline, but AIG said it was still a significant improvement over the prior four quarters. Chartis’ first quarter 2010 operating income before net realized capital gains (losses) was $879 million compared to $710 million in the first quarter of 2009, a 24 percent increase.

Results for the quarter include catastrophe losses of approximately $481 million, including the Chile earthquake and other natural events, compared to the prior year period in which no catastrophe losses were incurred.

The first quarter of 2010 combined ratio was 102.5 compared to 96.7 in the prior year period. The current period combined ratio excluding catastrophe losses was 96.2.

Chartis recorded net premiums written of $7.6 billion in the first quarter of 2010, a 1.1 percent decrease from the first quarter of 2009. The modest decline is a significant improvement over the prior four sequential quarters, AIG said, citing Chartis’ price discipline where market rates are unsatisfactory in certain lines, including workers’ compensation, and strategic growth in high margin lines of business. In addition, Chartis is actively pursuing risk management initiatives that improve profitability and balance sheet strength.

“While Chartis continues to see increased business retention, new business submissions, and a continued stable rate environment, net premium writings continue to be affected by challenging economic conditions,” AIG wrote in its earnings release.

“The external environment has been helpful for AIG in ways that it can’t take credit for,” Morningstar analyst Bill Bergman said. “But there are things that they can take credit for.

“Stabilizing the insurance premium and retaining the confidence of their customers seems like something they can point to and be proud of,” Bergman said.

AIG, nearly 80 percent-owned by the U.S. government, reported a first-quarter profit to the company of $1.5 billion, or $2.16 per share, compared with a loss to the company of $4.4 billion, or $39.67 a share, a year earlier.

Net income attributable to AIG common shareholders was $294 million, compared with a year-ago loss of $5.4 billion.

“We remain focused on further stabilizing and strengthening our businesses while continuing our restructuring activities, closing the pending transactions, and developing plans to address our highly leveraged capital structure,” Chief Executive Robert Benmosche said in a statement.

Benmosche sees a future for AIG with the general insurance business, Chartis, and the U.S. life insurance and retirement services business, SunAmerica Financial Group, forming the core, as AIG sheds assets to repay the U.S. government after a $182.3 billion bailout.

“On the surface it appears to have stabilized, which is promising,” Bergman said.

PROBLEMS PERSIST

AIG said net premium writings continue to be affected by challenging economic conditions.

Profit at SunAmerica also improved largely due to increased net investment income. But premiums, deposits and other considerations fell 6.5 percent on a decline in individual fixed annuities and lower life insurance sales.

“What good news there is seems to be driven by their investment. And given that forward looking prospects of that are iffy, it is hard to bank on that,” said Aite Group senior analyst Clark Troy, who focuses on life insurance.

AIG reported $16.3 billion in revenue for the quarter.

AIG Financial Products, the unit behind the insurer’s collapse, reduced the notional amount of its derivative portfolio by 20 percent during the quarter, to $755.4 billion at March 31. The number of trade positions in its portfolio was cut 11 percent to about 14,300.

Earlier this year AIG agreed to sell two major foreign life insurance businesses for a total of about $51 billion.

But one of the deals — the sale of American International Assurance to Prudential Plc for $35.5 billion — has hit a rough patch, with the British insurer delaying a massive rights issue to fund the deal.

AIG shares have risen more than 22 percent this year. Last month, Fairholme Capital Management, a respected investment manager, reported an 11.1 percent stake in AIG. (Insurance Journal contributed to this story.)

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