American International Group Inc. reports a fourth-quarter netloss of $4 billion on losses related to Superstorm Sandy and thesale of an aircraft leasing unit.

Results are compared to net income of $21.5 billion during thelast three months of 2011.

Full year net income was $3.4 billion compared to $20.6 billionin 2011.

AIG says after-tax losses from Sandy were $1.3 billion in thefourth quarter ($2 billion before tax). AIG recorded a $4.4 billionloss on the sale from discontinued operations related to itsagreement to sell International Lease Finance Corp. (ILFC).

A look at operating income reveals strong underlying results,say the insurer's executives during a conference call to discussresults.

Despite AIG's P&C division turning in a fourth-quarteroperating loss of $945 million due to losses from Sandy, AIG stillturned in fourth-quarter net operating income of $290 million,compared to $1.47 billion during the same time in 2011.

Rate increases AIG sought after Hurricane Irene struck theNortheast in 2011 “mitigated Sandy's impact,” says Peter Hancock,head of AIG's global P&C business, during the call.

The insurer took steps to reduce U.S. catastrophe exposure overthe last three years, and changed deductibles, terms andconditions, and implemented flood supplements, Hancock adds.

P&C operations recorded an underwriting loss of about $2.2billion in the fourth quarter, compared to a loss of $636 million ayear ago. Net premiums written were relatively flatquarter-to-quarter as growth in high-value accounts was offset byrisk-selection initiatives and a change in the insurer'sreinsurance program, explains Hancock.

Commercial insurance benefitted from continued rate increases inthe fourth-quarter—up 6 percent globally, Hancock says. U.S.property rates were up 14.6 percent and U.S. workers' compensationrates were up 12.4 percent after improving 8.8 percent during thethird quarter.

“The steps we've taken to improve business mix are producingmore favorbale underwriting results,” Hancock says. “We expectmodest real net premium growth in 2013.”

Hancock says AIG has completed its annual reserve study ofworkers' compensation and other long-tail lines, and the study“supported current reserve levels.”

For all of 2012, AIG improved operating income more than 200percent to $6.6 billion from $2.1 billion in 2011.

SIFI Looming

“You have some days you wish you could have a simple company,but then we wouldn't be AIG,” says CEO Robert H. Benmosche duringthe earnings call, on AIG's belief it will ultimately be designateda systemically important financial institution (SIFI).

“They're here,” he says of the Fed. “We have a good partnershipand I'm sure that they will be able to get a better sense of us inthe months to come, but that's a long road because there is a lotto learn.

CFO David Herzog characterized the conversation with the Fed as“constructive, open and frequent.”

Without commenting on specifics, Herzog says AIG has “takengreat steps to prepare ourselves through mock exams, enhanceddocumentation of procedures, and processes and risk limits–workinghand-in-hand with [Chief Risk Officer Sid Sankaran] and ourTreasury Group.”

Seeking Ratings Upgrade

Bemosche says AIG has been working with rating agencies to makethem more comfortable with the company's operations.

“Keep in mind that we came out of this crisis much more rapidly[than most people thought," Benmosche says. "With the speed thatthis has occurred in, [rating agencies] just want more time to seeus continmue to evolve with good solid earnings.”

Continuing, he adds, “An upgrade to AIG over the next coupleyears, I think, would be the important statement that says we haveaccomplished a strong comeback.”