AIG Reports 3Q Loss Of $24.5 Billion

American International Group lost $24.5 billion in the third quarter, but its chief executive said the ailing carrier has restructured its government debt to stop the company from hemorrhaging cash.

"AIG is, in fact, on the road to recovery," Edward M. Liddy, AIG chairman and chief executive officer, said during a conference call with financial analysts in the wake of the announcement of the company's new deal that improves its government loan terms and brings its total bailout to $150 billion.

The New York-based insurer said its net loss was due to the combination of the financial turmoil, catastrophe losses and charges related to its financial restructuring.

Third-quarter net income dropped $27.55 billion, going from net profit of $3.09 billion, or $1.19 a share in the comparable 2007 period, to net loss of $24.47 billion, or loss per share of $9.05 this year.

For the nine months, net income fell $49.12 billion, going from net income of $11.49 billion, or $4.40 share last year, to net loss of $37.63 billion, or net loss per share of $14.40.

Under its operating segments, general insurance operations performed best, posting a drop in operating income of $5 billion in the third quarter, going from net operating income of $2.44 billion last year to net operating loss of $4.56 billion.

The loss was on a less than 1 percent decline in net written premiums which went from $11.8 billion last year to $11.7 billion this year.

The nine-month operating income in general insurance fell $8.9 billion, from operating income of $8.5 billion to operating loss of $393 million.

Net premiums written remained virtually unchanged on a year-to-year basis, standing at $36 billion.

The results saw the combined ratio increase 23.44 points to 113.61 for the third quarter. For the nine months, combined ratio rose 14.44 points to 102.7.

AIG said the combined ratio results include the underwriting results of Mortgage Guaranty's second-lien business which was placed in runoff in September.

The results included claim losses from Hurricane Ike and Gustav of $1.4 billion.

Life insurance and retirement operations suffered the biggest hit in the third quarter, reporting an operating loss of $15.33 billion, down from last year's operating income of $1.99 billion.

For the nine months AIG life and retirement reported an operating loss of $19.6 billion compared to operating income of $6.9 billion in the prior year.

The company said the life insurance and retirement operations losses were a result of investment losses.

AIG financial services operations rounded out the loss report with operating loss of $8.2 billion compared to operating income of $669 million for the third quarter last year. For the nine months, operating loss came in at $22.88 billion compared to prior-year operating income of $1 billion.

AIG also announced a restructured debt plan that makes the lending requirements less onerous for the company, extending the time for paying back its bridge loan facility from the Federal Reserve Bank of New York from two years to five years and decreasing its interest rate on the loan.

Mr. Liddy pronounced the agreement a "win-win" for the company, stockholders and U.S. taxpayers, adding the deal is the company's "second milestone" in a journey back toward profitability.

"All investors should recognize that this will be a several year process tied in no small part to financial recovery around the world," said Mr. Liddy.

He said the move would stabilize AIG and restore confidence.

Despite the turmoil the company has faced, executives said the company continues to do well writing insurance business and retaining customers. Mr. Liddy said there are signs that prices are stabilizing and gaining traction.

"All of our insurance businesses are making a concerted effort to get in front of customers and brokers to address their concerns," said Mr. Liddy. "Today's announcement should alleviate many of those concerns and put our businesses in a much better position going forward."

Kristian P. Moor, president and CEO of AIG's property-casualty business, said there has been misinformation about the performance of the company. In fact, the business is operating well. The company retains a significant surplus, it retains a conservative investment portfolio, and no portion of the p-c division is for sale.

He said September's account retention was down 6.5 percent and October is down slightly on a year-to-year basis, but better than September.

The company is continuing to win new business, and whatever business is lost is due to price competition, he said. But customers are continuing to do business with AIG commercial because of its superior standing in the industry.

"Commercial insurance is not sacrificing underwriting integrity to retain market share," said Mr. Moor. "I believe that allegations of excessive price cutting are coming from carriers frustrated by their inability to win significant market share from us."

He also noted that there is competition for AIG employees, but turnover stands at 6 percent and key employees are replaced as soon as possible.

As far as certain assets of the company, Mr. Liddy said there is no change from prior announcements that all segments are for sale except U.S. commercial, foreign general and a majority interest in foreign life operations. He said an announcement of the sale of some assets could come before the end of this year.

After today's announcement Fitch Rating service said it was removing AIG's financial strength rating on its commercial and mortgage insurance business that AIG plans to continue to own from rating watch and affirmed the "double-A-minus" rating of those operations. However, the "A" rating on life operations remain on rating watch.

A.M. Best Co. said all AIG insurance subsidiaries were assigned a negative outlook with negative implications and affirmed their financial strength ratings ("A-excellent") and issuer credit rating ("a"). American International Group Inc.'s issuer credit rating of "triple-b" was also affirmed with negative implications and negative outlook.

Late this afternoon, Standard & Poor's and Moody's said that their ratings of the company and its subsidiaries were unaffected by the earnings report.

AIG's stock closed up 17-cents on the day at $2.28 a share.

(This story was updated at 9:04 a.m., Nov. 12)