“There will be no abrupt change in strategy,” incoming American International Group president and CEO Peter Hancock vowed today as he moved to assume control of the company from retiring CEO Robert Benmosche.
The changing of the guard occurs as AIG reported a strong quarter that beat estimates. The company reported that operating earnings, which do not include realized capital gains and losses from its investment portfolio and other items, increased 11% to $1.83 billion, or $1.25 cents a share, from $1.7 billion, or $1.12 a share. AIG also reported catastrophe losses of $139 million, compared with $316 million for the same quarter in 2013. The decline is attributed to lower global-disaster costs.
The company also says it bought back $1.1 billion in stock in the second quarter and plans to buy back $2 billion in stock in the current quarter.
Hancock cautions that “pricing pressures” are likely to constrain continued improvements in the company’s property and casualty loss ratio for the remainder of the year.
The report marks another step away from the crisis mode the former insurance industry behemoth endured as it and the federal government dealt with an ill-advised move the company made away from its core insurance business with a huge investment in credit default swaps that sent it into the hands of the taxpayer from 2008 until 2012.
Hancock says he will retain control of the P&C insurance business for the time being, and has “committed” himself to “remaining very transparent with our shareholders as we fine tune and refine our strategy going forward.”
He adds, “I remain very committed to focusing on value versus simply bulking up the volume of the company.”
In responding to a question from an analyst, Hancock was also candid in indicating he believes the decision of the board to appoint him is not likely to result in major departures of key long-term AIG executives presumably disaffected by the board’s decision.
In opening the conference call with analysts, Benmosche noted this “will be my last call.
“It’s been a five-year period of lot of excitement and this quarter reflects a lot of hard work on behalf of all of the people of AIG,” Benmosche said.
He said, “We started off with a daunting task of stabilizing this company, then paying back America and we’ve done that with a profit.”
AIG’s P&C unit had a combined ratio of 98.2 in the quarter, reflecting tighter underwriting standards.
P&C second quarter operating income was $1.4 billion, which Hancock says was the second highest quarter of pre-tax operating income in over three years.
“Our focus remains on balancing growth, risk and profitability right across AIG.”
Hancock says commercial insurance net premiums written declined slightly from the same period in the prior year, “primarily from our decision to walk away from certain risks. He adds AIG P&C saw growth in its global financial-lines business as well as in its specialty-lines business.
“However, we continue to see a competitive market in certain casualty lines and in the U.S. property catastrophe category as a result of overcapacity in the market,” he says.
Commercial-insurance rates overall were unchanged in the quarter and up 1% in the U.S. from a year-ago, Hancock says.