American International Group reported a larger profit for the second quarter on Thursday, as tax benefits boosted results and operating income grew across the company’s varied insurance businesses.
The company also reported more than $11 billion in liquidity at the parent company level, a cash pile most people expect it will use to buy down some of the government’s remaining stake.
Net profit rose to $2.33 billion, or $1.33 per share, from $1.84 billion or $1 a share a year earlier.
Operating income was $1.06 per share. Analysts polled by Thomson Reuters I/B/E/S on average expected earnings of 57 cents per share.
Net income was boosted by a tax allowance release of some $1.28 billion, the latest in a series of tax benefits the company has been able to recognize as it returned to profitability. It was partially offset by a tax expense of $331 million and an increase to legal reserves of $450 million.
The company, still 61 percent-owned by the U.S. Treasury after its $182 billion bailout, ended the quarter with roughly $11.5 billion in parent company liquidity.
Analysts and investors expect the company will use a large chunk of that cash to buy back some of the Treasury’s stake, perhaps as soon as the next few days. In recent quarters the Treasury has launched a share sale the day after results.
Some of that capital came from the sale of assets in Maiden Lane III, the crisis-era bailout vehicle set up by the Federal Reserve Bank of New York. AIG has already received $6.1 billion in proceeds from MLIII asset sales and expects to receive another $1.9 billion this month.
Chartis, the company’s global property insurer, reported a rise in operating income to $936 million from $783 million a year earlier, as pricing grew, catastrophe losses fell and it expanded in more valuable business lines.
Domestic life insurer SunAmerica posted operating profits of $933 million versus $723 million a year earlier. The second quarter of 2011 had a number of one-time items and reserve increases that were not present this time. Fixed annuity deposits fell sharply, while the less rate-sensitive variable annuities grew. Net investment income was flat.
AIG also said the fair value of its stake in Asian insurer AIA Group Ltd fell $493 million during the quarter, impacting results. AIG spun off AIA in late 2010, but still retains a stake of around 19 percent, which it is expected to sell in early September when a lockup expires.
Aircraft leasing business ILFC was up slightly in the quarter, with a profit of $88 million, weighed down by impairment charges for early returns from leases and potential sales. AIG filed for an initial public offering of ILFC last year, but has held back from launching the offer due to uncertain market conditions.
Mortgage insurer United Guaranty nearly quadrupled its operating income to $43 million in the quarter, as new delinquencies fell 17 percent. UGC, once seen as a peripheral asset, has become a core part of AIG’s business as competitors stumbled and it gained market share.
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