AIG Quarterly Profit Soars

American International Group, Inc. reported yesterday that 2006 fourth quarter net income skyrocketed 674 percent– increasing by nearly $3 billion–led by its general insurance business after a year without major catastrophes.

Net income for the quarter was $3.44 billion ($1.31 per share), compared with $444 million (17 cents per share) for the comparable period in 2005.

AIG also said its board approved a new buyback and dividend program. The buyback plan will see AIG try to repurchase up to $8 billion in common stock.

The company announced it intends to repurchase $5 billion in stock this year–and as part of the new dividend policy, AIG will increase its dividend on common stock by roughly 20 percent a year, under “normal” circumstances.

The company will fund buybacks using existing capital and by issuing hybrid securities, which AIG said lowers its cost of capital.

During a conference call today, senior management said they see a number of opportunities for growth in many of AIG's segments.

Discussing pricing, AIG said it was seeing decreases, with rates “particularly troubling” for aviation and directors and officers liability. Regarding D&O coverage for firms with middle-range capitalization, management said AIG is “walking away from some of that business.”

AIG said results were negatively affected by charges for the adverse ruling in an arbitration with workers' compensation insurer Superior National, as well as the exit of its domestic financial institutions credit-life business, which collectively decreased net income by $124 million (5 cents per share).

Fourth quarter 2006 results also included a $129 million (5 cents per share) charge related to an increase in asbestos and environmental reserves, which were beefed up by $198 million. The change in reserves, AIG said, resulted from an updated ground up analysis of those exposures.

“We're increasingly comfortable with our overall reserves,” the management said.

AIG also reported fourth quarter out-of-period adjustments that collectively increased net income by $56 million (2 cents per share).

Net income for all of 2006 was $14.05 billion ($5.36 per share), compared to $10.48 billion ($3.99 per share) for the previous year.

Full-year 2006 adjusted net income was $15.41 billion ($5.88 per share), compared to $8.75 billion ($3.33) per share for 2005.

Full-year and fourth-quarter 2005 results included a $1.15 billion (44 cents per share) after-tax charge resulting from federal and state regulatory settlements.

In the full year, there was also a $1.19 billion (45 cents per share) after-tax charge related to an increase of approximately $1.82 billion in AIG's net reserve for losses and loss expenses.

AIG President and CEO Martin J. Sullivan said the company in 2006 had put its regulatory problems related to accounting infractions behind it, and had improved financial controls.

Full-year and fourth-quarter 2005 results include catastrophe-related losses, net of tax, of $2.11 billion (80 cents per share) and $540 million (20 cents per share), respectively.

With no major catastrophes in 2006, the company saw its fourth-quarter combined ratio improve 4.47 points to 91.69.

Fourth-quarter personal lines net premiums written increased only slightly, while Domestic Brokerage Group net premiums written were down 7.7 percent.

Foreign General net written premiums increased 32.5 percent to $2.59 billion in the quarter.