NU Online News Service, Feb. 26, 11:55 a.m. EST
American International Group cut its fourth-quarter net loss by 86 percent over the same period in 2008, reporting it reduced its net loss by $54 billion.
The New York-based insurer reported fourth-quarter net loss for 2009 of $9 billion, or loss per share of $65.51, compared to the previous year’s net loss of $62.6 billion, or net loss per share of $458.99.
For net premiums earned, the company reported a drop of 7 percent, or $633 million, to $8.03 billion for the quarter.
The company said for the year, net loss stood at $12.3 billion, a net loss per share of $90.48, compared to a net loss in 2008 of $100.4 billion, or net loss per share of $756.85 billion.
Net premiums earned for the year dropped 12 percent, or $4.23 billion, to $32.3 billion.
The company said the net loss was attributed to several factors:
o There was $6.2 billion of interest and amortization expense on its $25 billion reduction on the outstanding balance and maximum credit available under the Federal Reserve Bank of New York credit facility.
o There was a $2.8 billion loss recognized on the company’s pending sale of Nan Shan Life Insurance Company, Ltd.
o Loss reserve strengthening of $2.3 billion at Chartis, its commercial insurance segment.
o A valuation allowance charge of $2.7 billion for tax benefits.
In recorded remarks at the company’s Web site, Robert Benmosche, AIG president and chief executive officer, said that despite the volatility, many of the company’s businesses have begun to recover since the beginning of the year. He also noted the improvement in the company’s performance over the previous year.
“While we are not out of the woods by any stretch, these numbers represent a substantial improvement from just one year ago,” he observed.
He noted that the company has “significantly” wound down its derivatives portfolio at AIG Financial Products, which brought the company to the brink of bankruptcy through its investments in collateralized debt obligations. He said the strategy is to exit the “vast majority” of the segment’s risks by the end of the year.
To help pay off the company’s debt to the U.S. Government, Mr. Benmosche said it has placed two of its major company’s–American Life Insurance Co. (ALICO) and American International Assurance Co. Ltd. (AIA)–up for sale or initial public offering, depending upon market conditions or regulatory approval.
“Clearly we will be a smaller and more focused company than in the past,” said Mr. Benmosche, adding that the company is on its way to regaining its stature as one of the world’s largest property and casualty insurance companies. “The only way we can repay taxpayers is to divest parts of the organization, and we are.”
He said while the company is showing continued improvement, continued volatility is expected in the coming quarters, “partly due to ongoing restructuring activities.”
In a letter to shareholders, Harvey Golub, non-executive chairman, was critical of some of the executive compensation restrictions placed on the company, saying “they make little business sense.” He said in some cases the company has not been able to provide “market competitive compensation to retain some our own most experienced and best executives.”
He said being unable to pay competitively “hurts the business and makes it harder to repay the taxpayers.”
The company’s goal “is to fully repay” the U.S. Government’s loans and move forward to ensure the remaining AIG businesses “are thriving and profitable as soon as is practicable,” he said.
Government assistance will be needed “for some time,” he said, adding that the company needs to pay the employees it needs competitively in order to become independent again.
Late this morning, Fitch Ratings placed AIG’s financial strength rating of “A-plus” for its domestic insurance group on rating watch negative as it reviews the company’s reserve strengthening.
Fitch said that after its review, if it is comfortable with reserve adequacy and accident year underwriting profitability, it would maintain the rating. If it is not comfortable, then the review could result in a one-notch downgrade to “A.”
After AIG announced its results Moody’s affirmed the Aa3 insurance financial strength rating of Chartis U.S. and the A1 financial strength rating of its life subsidiary Sun America Financial Group.