American International Group's mixed bag of earnings results indicates that underlying strengths will soon emerge as the carrier overcomes its regulatory challenges, analysts say.

The nation's largest insurer by market value yesterday reported a nearly 16 percent earnings decline for the first quarter of 2006, due in part to some adverse tax consequences.

The company posted $3.2 billion in net earnings, compared to $3.8 billion in the comparable 2005 period.

Bank of America's insurance analyst, Brian Meredith, said he continued to rate the company's shares a buy. “With the overhang of the regulatory settlement and loss reserve review behind the company, investors can focus on the sound fundamentals in most of AIG's operating segments,” he wrote.

In a conference call this morning, AIG Chairman Martin Sullivan said as the year progress, he expects special one-time charges will diminish, and analysts can focus on the company's underlying profitability.

Mr. Meredith noted that AIG's General Insurance combined ratio was significantly better than anticipated at 89.1, compared to his expectation of 92.3, “as the favorable accident-year combined ratio in 2005 carried over into 2006.”

However, while life insurance operating income was in line with expectations, “top-line growth continued to be a problem in both domestic and foreign life operations, with fixed-annuity sales declining offset by improvement in variable annuity and life insurance sales.”

While General Insurance enjoyed a more favorable than expected combined ratio, net premiums written in the segment grew by only 4.3 percent compared Bank of America's forecast of 7.8 percent. The same was true for personal lines premiums, which rose 1 percent compared to expectations of 8 percent.

On pricing, Mr. Sullivan said U.S. property and energy lines were seeing increases, and “we see that continuing until the end of the year.”

Casualty coverages, however, were flat to down, with the longer-tail lines suffering as much as a 10 percent decline, he noted.

Morgan Stanley analyst William Wilt was a bit less sanguine about the company's prospects following the earnings results, asserting that the stock price will probably be weak on the “heals of a disappointing quarter.”

“It seems unlikely that 2006 or 2007 earnings will revise upward until the company demonstrates it can fire on all cylinders,” he wrote.

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Analysts See Mixed Bag In AIG Results

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