NU Online News Service, May 6, 11:02 p.m. EDT
Robert H. Benmosche, president and CEO of American International Group Inc., says the company is "ready to move forward" after reporting an 85 percent drop in first-quarter net income.
AIG income fell due primarily to $1.7 billion in pretax catastrophe losses and a $3.3 billion pretax charge related to paying back debt to the Federal Reserve Bank of New York (FRBNY).
During a conference call Benmosche calls the first three months a "major quarter," as AIG paid back the FRBNY two years ahead of schedule. The company has deferred tax assets available to offset future tax obligations.
"We'll have that money to fund the capital-management program for the next several years," he says.
The New York-based insurer says net income was $269 million for the first quarter compared to $1.8 billion in earnings during the same period a year ago.
The earthquake and tsunami in Japan, an earthquake in New Zealand, and flooding in Australia accounted for the catastrophe losses during the quarter.
AIG's payment to the FRBNY is its last in order to retire the FRBNY Credit Facility as part of an overall plan to restructure the massive bailout given to AIG to avoid collapse in 2008.
Looking beyond the repayment and catastrophe losses, Benmosche says the "underlying core business is doing extremely well." Operating income rose to slightly more than $2 billion, after tax, which more than tripled operating income posted after the first three months in 2010.
The company's property and casualty unit, Chartis, took an operating loss of $463 million, compared to a gain of $879 million last year at this time, due to the catastrophe losses. The first-quarter combined ratio for Chartis was 119 vs. 102.5 a year ago.
However, worldwide net written premiums increased 6.2 percent (excluding the impact of the consolidation of Fuji Fire & Marine Insurance Co.) due to increased retention in the U.S. and "modest organic growth" in international units, says David Herzog, chief financial officer.
Benmosche says Chartis remains focused on getting the right combined ratio and the right returns. The unit continues to "deemphasize lines that have caused difficulty in the past," says Benmosche, adding that Chartis closed on its transfer of asbestos liability to Berkshire Hathaway's National Indemnity Co.
AIG said it expects to increase operating earnings to between $4 billion and $5 billion by 2015 as well as raise investment income and capital available for mergers and acquisitions and share repurchases.
AIG needs to "demonstrate without any question that we have strong credit ratings," Benmosche says. He adds that AIG needs $3 billion in primary capital to convince the feds it will succeed once the company is off on its own.
"They like us but not that much. They don't want us coming back," Benmosche says.
The CEO says he expects that AIG, predominantly the holding company, will be regulated by the federal government as well as by the regulatory authorities in each state and country the company does business in.
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