AIG Reports Profit, But P&C Business Still Struggling

As of June 30, AIG said the total balance outstanding to the Federal Reserve Bank of New York was $44.8 billion, while it owes $41.6 billion to the U.S. Treasury under the Troubled Asset Relief Program.

Mr. Liddy said the latest results were primarily driven by reductions in net realized capital losses and improved market conditions.

"While our insurance companies' operating results remain challenged–largely driven by weak economic conditions and the lingering effect of negative AIG events earlier in the year–performance trends stabilized from the first quarter," according to Mr. Liddy, who last week turned over his CEO post to Robert H. Benmosche, the former head of MetLife.

Last week, Harvey Golub also took over as non-executive chair of AIG. Mr. Golub, 70, who was chair and CEO of American Express Company from 1993 to 2001, became a member of the AIG board earlier this year.

While the company will focus on stabilizing and strengthening the business, "continued volatility" is expected in future quarters, according to Mr. Liddy.

This volatility, Mr. Liddy explained, will come from accounting charges from its restructuring activities–especially as it pays down its loan from the Federal Reserve Bank of New York with the spin-off of two of its life units, which will result in substantially reducing AIG's debt to taxpayers.

The company had second-quarter net income of $1.85 billion ($2.57 a share), compared to a net loss of $5.4 billion ($10.15 per share) last year–beating the consensus analyst estimate of $1.67 a share.

However, for the first half, AIG reported a net loss of $3.3 billion ($6.61 per share), still far better than the net loss of $13.13 billion ($37.92 per share) for the same period in 2008.

On the property and casualty insurance side of the ledger, AIG reported net premiums written of $7.9 billion–down 19 percent from the $9.8 billion generated last year. Underwriting profit fell 80 percent–down $608 million to $148 million, as AIG reported a 5.99-point deterioration in its combined ratio to 98.16. Operating income for the segment was off 20 percent, down $241 million to $971 million.

For the first half, p&c insurance net premiums written fell 19 percent–down $3.6 billion to $15.7 billion. Underwriting profit fell 72 percent, down $1.1 billion to $425 million. The combined ratio rose 5.65 points to 97.39. Operating income dropped 60 percent, down $1.6 billion to $1.09 billion.

The commercial insurance combined ratio rose 5.9 points to 99.8, reflecting increased loss trends and the soft market environment, the company said.

The company's general insurance combined ratio rose six points to 98.2 on declines in net investment income, while for foreign general insurance the combined ratio rose 6.1 points to 95.5, which was primarily attributed to separation costs, restructuring charges, bad debt expenses and decreased earned premium.

General insurance net premiums written fell 19 percent in the quarter, driven by the economic downturn affecting the volume of business, as well as the result of maintaining underwriting discipline across business lines, AIG said. However, the line continues to retain the vast majority of its customers, according to the company.

Foreign general insurance net premiums written, which dropped 21 percent, was impacted by the effects of foreign currency exchange rates, the company reported.

LATEST SALE

In related news, AIG's Financial Products Corp. last week completed the sale of its energy and infrastructure investment assets for aggregate net proceeds in excess of $1.9 billion.

"The completion of the sales effort for this portfolio is a significant milestone in the ongoing process of winding down AIGFP's business," said the unit's chief operating officer, Gerry Pasciucco. "The aggregate net proceeds realized for AIG represents very strong execution in challenging market conditions."

The announcement of the latest transaction noted that the AIGFP disposition effort, which began during the fall of 2008, concluded with AIGFP's sale of its lease equity interest in the Bruce Mansfield power generation plant operated by FirstEnergy Corp.

Sale of the power plant follows recent closings of three other sales–a tax equity interest in the Stanton wind farm in west Texas, and two lease equity interests in portfolios of rail cars operated by BNSF Railway Company.

AIGFP has previously announced certain other asset sales from the portfolio, including its interest in Tenaska Marketing Ventures, its interest in two volumetric production payment transactions, as well as its stake in three operating Spanish solar photovoltaic power plants.

"These recent asset sales provide a positive conclusion to a very successful disposition program for AIGFP's energy and infrastructure portfolio," Mr. Pasciucco said.