Improvement in Insurance Operations Boosts AIG in Q2

NU Online News Service, August 3, 11:41 a.m. EDT

American International Group reported a 27 percent increase in second-quarter net income compared to the same period last year, and predicted “we are close” to paying off the government for its investment in the company starting in 2008.

AIG says it also believes the government will make a profit on its investment.

The growth was primarily in its insurance operations, and was nearly double the consensus of Wall Street analysts.

Net income attributable to AIG was $2.3 billion and after-tax operating income was $1.9 billion for the quarter, compared to net income of $1.8 billion and after-tax operating income of $1.2 billion for 2011's second quarter.

Chartis, the company's multinational property and casualty operations, reported operating income of $936 million in the second quarter of 2012, compared to operating income of $783 million in the second quarter of 2011. 

The combined ratio dropped to 102.4 compared to 104 a year ago. Excluding catastrophes, the accident-year combined ratio was 98.3, compared to 97.7 in the second quarter of 2011

A factor in the growth of sales at Chartis was a stronger market and a focus on more profitable, less risky lines of P&C business, the company says.

During a conference call with financial analysts, Peter Hancock, executive vice president, general insurance, said the 20 percent increase in operating income for Chartis was due to the combination of underwriting improvements and lower catastrophe losses. The results were slightly offset by an increase in expenses that were attributed to higher acquisition costs for underwriting business and higher operating expenses “tied to people and processes.” He said improvement in the expense and loss ratios are expected through the end of 2013.

He added that the $328 million in catastrophe losses for the quarter were primarily from storm activity in the United States, Japan and floods in the United Kingdom. Catastrophe losses were higher than expected, but “we're comfortable with the result given the general level of cat activity and the extent of our geographic mix of business.”

Chartis remains focused on international growth during the second quarter, Hancock continued, with 48 percent of total premiums generated outside of the United States and Canada, and he said that “growth economy nations or emerging markets” represented 10 percent of total premiums.

Turning to underwriting, he said commercial rates improved by 8 percent, while in Europe rates rose 1 percent, .

“While we have not characterized the environment as a hard market, it is certainly improving,” said Hancock.

AIG's life unit, SunAmerica Financial Group, reported operating income of $933 million in the second quarter of 2012, compared to operating income of $723 million in the second quarter of 2011.

United Guaranty Corporation, AIG's residential mortgage guaranty operations, reported stronger growth, and operating income of $43 million for the second quarter of 2012, compared to operating income of $12 million in the second quarter of 2011, reflecting favorable prior-year development and a 17 percent decline in new delinquencies.

At the same time, AIG reported that the fair value of the ordinary shares it still owns of AIA, its Asian life insurance unit that it is spinning off, decreased $493 million during the second quarter of 2012.

But the value of the company's investment in Maiden Lane III, a special purpose vehicle created to hold securities AIG had to repurchase in exchange for credit default swaps it issued before it got into trouble in 2008, increased $1.3 billion during the second quarter of 2012.

That amount is rising as the Federal Reserve Bank of New York continues to auction off the securities held in the facility.

AIG President and CEO Robert Benmosche says in a statement, “Every day, the people of AIG continue to make significant progress in restoring our reputation in the communities we serve; respect for the AIG name has endured among our partners and customers.”  

He reiterated that, in October, the SunAmerica Financial Group segment will be renamed AIG Life and Retirement, and that the property and casualty insurance operations will return to the AIG name, from Chartis.

Additional reporting by Mark E. Ruquet