AIG’s Confidence in Future Profit Results in Larger Q4 Gain

David L Herzog, AIG chief financial officer, says during a conference call with analysts that the release of deferred tax assets "signifies our view that we have returned to sustainable profitability."

Robert H. Benmosche, president and chief executive reiterated the point, saying "We want people to understand we are financially strong."

Basically, AIG did not pay taxes on the heavy losses it took in the past and was given tax breaks on future profits underU.S.tax law. AIG tapped into about 65 percent of the money in that pool for the fourth quarter after assessing its situation.

After-tax operating income for the 2011 fourth quarter was $1.6 billion compared to a loss the year prior of $2.2 billion.

Not everyone was particularly impressed. An analysis of earnings by Keefe, Bruyette & Woods says much of the operating income was attributed to a $1 billion gain from the sale of AIA, AIG's Asian life-insurance division, as well as more than $200 million from a lawsuit.

KBW maintains a weak outlook for return on equity at AIG.

Benmosche remains steadfast in his opinion that AIG "is back" and deserving of confidence. AIG is "well on its way to aspirational goals" for 2015, including a low-90s combined ratio.

The earnings presentation touted AIG's perceived accomplishments during 2011 from restructuring government ownership of the company—a result of its bailout—to repaying debt to the Federal Reserve Bank of New York. During the second half of 2011, the company shifted from "saving AIG to building AIG," says Benmosche.

Chartis, the property and casualty unit of AIG, reports $348 million in operating income in the fourth quarter despite $467 million in catastrophe losses, including $368 million from the flooding inThailand.

Results compare to a net operating loss of $4 billion in the last quarter of 2010 due primarily to a reserve-strengthening charge.

Chartis CEO Peter Hancock says Chartis experienced 4 percent rate increases in U.S. and Canada and 8 percent increases in workers' compensation and property lines.

The fourth-quarter combined ratio was 107.3, which included net favorable prior-year reserve development of $13 million.

Net premiums written at Chartis increased 3.6 percent in the fourth quarter. John Q. Doyle, chief executive officer of global-commercial business for Chartis, says there was no slow-down in rate momentum to start 2012 and the company is "encouraged by retention relative to the rate we're pushing."

Looking ahead, Benmosche says AIG will be "investing heavily" in technology for data-mining of workers' compensation claims records, for example.

The workers' compensation book of business continues to shrink, as the insurer has initiated a predictive modeling approach to risk selection in order to manage exposure.