AIG Reports Big Loss on Charges; Insurance Results Remain Stable

November 5, 2010

American International Group, Inc. (AIG) reported a net loss of $2.4 billion for the third quarter of 2010, compared to net income of $455 million in the third quarter last year. The loss was attributable to restructuring and goodwill charges and losses from sales of assets.

Income from continuing insurance operations, largely property/casualty insurer Chartis and life insurer SunAmerica Financial, was stable, at $2.1 billion.

Chartis’ third quarter 2010 operating income was $1.1 billion compared to $719 million in the third quarter of 2009. SunAmerica’s operating income fell 18.5 percent to $978 million on lower net investment income, although the company sold more life insurance in the period.

The company said results at Chartis were primarily driven by an improvement in underwriting income. Third quarter 2010 results reflect the consolidation of Fuji Fire & Marine Insurance Co. following the previously announced acquisition of a controlling stake in this publicly-traded Japanese insurance company.

The third quarter 2010 combined ratio for Chartis was 99.3 compared to 105.2 in the prior year period. The current period combined ratio, excluding catastrophe losses, was 98.4, compared to 104.5 in the prior year, a 6.1 point improvement.

Chartis’ accident year loss ratio improved 3.5 points as the prior year period included $200 million of losses related to worldwide financial credit crisis claims. Chartis’ expense ratio improved by 1.5 points from the prior year period, to 28.2, reflecting the acquisition and consolidation of Fuji.

In the quarter, Chartis recorded $208 million of adverse prior year development, net of reserve discount, compared to $246 million of adverse development in the prior year period. Included in the 2010 prior year development is $122 million, net of reserve discount, related to asbestos claims recorded during the current year and one large claim attributable to the 2007 California wildfires.

At Chartis, worldwide net premiums written of $8.6 billion increased by 7 percent compared to the same period last year. However, excluding Fuji, worldwide net premiums written declined by 4 percent as a result, the company said “of challenging economic conditions impacting ratable exposures and a competitive property casualty market.”

The company said Chartis “continues to pursue risk management initiatives to manage its aggregate exposure to certain lines of business and remains price disciplined where market rates are unsatisfactory.”

On October 29, the firm launched an IPO of AIA, its Asian life insurance unit, which brought in nearly $18 billion. On November 1, AIG closed on the sale of its American Life Insurance Co. (ALICO) to MetLife for $16.2 billion. AIG has said it will use proceeds from these deals to pay down its debt to U.S. taxpayers.

President and Chief Executive Officer Robert H. Benmosche said AIG is continuing with its plan to close pending asset sales including American General Finance, Inc., AIG Star and AIG Edison in order to advance its plan to get out from under U.S. Treasury ownership.

He said that as the company pursues asset sales, its core insurance operations at Chartis and SunAmerica are of the utmost importance.

“Despite soft market conditions in the property casualty market and a low interest rate environment, these businesses have demonstrated their market leadership and are maintaining their discipline. We continue to focus on maintaining financial strength and underwriting discipline, improving efficiency and transparency, and better balancing risk and return,” Benmosche said.

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