AIG Posts Q2 Profit on AIA Stake

By | August 5, 2011

Bailed-out insurer American International Group reported a profit for the second quarter Thursday, as tax benefits and its one-third stake in Asian insurer AIA offset a decline in operating income at its main businesses.

The company’s chief executive also confirmed it is working on taking its aircraft leasing business public, though that may not happen this year. Sources had previously said that the company was working on hiring bankers to pursue an IPO.

While the underlying results at all of AIG’s units were lower than a year earlier, its core insurance performance improved. Most of the decline was attributed to investment results and catastrophe losses.

Shares were flat in after-hours trading following a sharp decline in regular trading, on what was the market’s worst day in nearly three years.

The company received a $182 billion bailout during the financial crisis, and the U.S. Treasury still owns three-quarters of the company, a position it is expected to sell down in stages by mid-2012.

AIG reported a net profit of $1.84 billion, or $1 per share, compared with a year-earlier loss of $2.66 billion, or $19.57 per share.

On an operating basis, AIG earned 69 cents per share. Analysts polled by Thomson Reuters I/B/E/S on average expected earnings of 92 cents per share.

TAXES AND ASIA

Two items bolstered the quarter: a $570 million tax benefit, and $1.52 billion in fair value income from AIA , the Asian insurer it took public last year.

AIG has said it would like to keep its roughly 33 percent AIA stake, which would require selling assets to pay off a preferred interest held by the U.S. Treasury in the entity that holds the AIA shares.

SunAmerica, AIG’s U.S. life insurance business, reported a 13 percent decline in operating income, as lower investment income offset slight growth in new business.

After stagnating during the crisis, the company has recently improved its distribution for annuities and other products and started to show improved results. The company has now returned to all of the distribution channels it had before the credit crisis and AIG’s near-bankruptcy.

Chartis, AIG’s property and casualty business, was hurt by disaster losses, which totaled $539 million. Operating income fell 17 percent, even though business grew substantially. Pricing for insurance products in the United States improved, while it was generally flat elsewhere.

[Chartis reported second quarter operating income of $789 million, compared to operating income of $955 million in the second quarter of 2010. The $539 million of catastrophe losses included $348 million related to tornadoes in the Midwest, Southeastern and Northeastern regions of the United States; $84 million for U.S. floods and other storms; and $54 million related to the New Zealand earthquake in June, compared to $300 million in catastrophe losses in the second quarter of 2010.

Chartis’ 2011 six-month operating income was adversely affected by the extraordinary level of catastrophe losses in 2011, including the $1.3 billion Tohoku earthquake and tsunami. The second quarter 2011 combined ratio was 104.0 compared to 102.0 in the second quarter of 2010. The current accident year combined ratio, excluding catastrophes, was 97.7, compared to 96.9 in the prior year period.

Second quarter 2011 net premiums increased 2.4 percent and were essentially flat compared to last year, excluding Fuji and the impact of foreign exchange. Chartis said U.S. pricing generally improved during the quarter, primarily driven by commercial property and workers’ compensation, while pricing on other lines was generally stable. Chartis said its retention continued to show positive trends.]

Operating income at aircraft leasing business ILFC fell by more than half to $86 million on charges to retire debt and dispose of older planes.

AIG Chief Executive Bob Benmosche said the business had its financing in place and was starting to grow earnings, and that it made sense to try and take the unit public because there wasn’t a strategic buyer who could afford it.

ILFC’s book value is around $8 billion.

AIG also said it has completed the planned wind-down of AIG Financial Products, the unit whose risky ventures into derivatives was responsible for the company’s downfall. The unit is still operating, but with a much smaller portfolio.

(Reporting by Ben Berkowitz, editing by Bernard Orr)

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