NU Online News Service
Executives with American International Group said the first-quarter losses the insurer suffered may not see a turnaround soon, as the housing credit crisis that affected earnings is expected to continue for a while.
Speaking during a financial analyst's conference call today, Steven J. Bensinger, vice chairman-financial services, said the credit crisis that has hit the nation and caused a $15.2 billion write-down for the insurer is "expected to continue for some time," and the economic stress "is not over."
Martin J. Sullivan, AIG's president and chief executive officer, said that although the company felt the investments it made were "prudent," it is making adjustments to its investments portfolio.
In view of the losses and the deterioration in underwriting revenue, he said the company will seek to increase rates and tighten underwriting going forward.
Despite the losses, Mr. Sullivan called the underlying business solid, noting that the losses occurred primarily in its lending and investment segments.
The New York-based insurer posted a net loss of $7.8 billion for the first quarter, a per share loss of $3.09 a share. This compares to net income of $4.13 billion and earnings per share of $1.58 for the first quarter of 2007.
In property-casualty underwriting, AIG reported net premium written declined less than 1 percent, remaining relatively flat at $12 billion. Operating income in the segment fell 57 percent, or $1.76 billion, to $1.34 billion. AIG's combined ratio rose 9.34 points to 96.86.
Despite soft market pressures, he said the market remains "reasonably disciplined" on terms and conditions, something different from past cycles.
Executives defended the company's decision to raise its stock dividend payment to shareholders while seeking to raise capital for the long-term interest of the company.
"We think it is absolutely the right thing to do, though dilutive in the short term," Mr. Bensinger said.
"The dividend increase is a reflection of both the board and management's long-term view of the strength of the company's business, earnings and capital generating power," Mr. Sullivan noted.
AIG is increasing its quarterly cash dividend by 10 percent to 22 cents a share payable on Sept. 19 to shareholders of record as of Sept. 5.
The company said it also plans to raise $12.5 billion in capital after two quarters of losses. It reported a net income loss of $5.29 billion for the fourth quarter of 2007.
As part of that plan it announced yesterday a strategy to raise $7.5 billion through stock offerings. The remainder will come in other forms of fixed income securities.
Reacting to the news, Standard & Poor's and Fitch Ratings both lowered the credit rating of AIG's subsidiaries connected to the subprime crisis by one notch and placed the ratings on credit watch.
AIG executives said that while this may make borrowing a little more expensive, it would not negatively impact the company overall, primarily because the rating action did not affect its insurance strength rating.
Late today, Moody's said it has placed the company's senior unsecured debt rated "Aa2″ under review for possible downgrade. The rating agency said if it decides to downgrade the debt rating, it would be by one or two notches. Moody's said it plans to complete the review quickly.
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