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AIG Posts Fourth-Quarter Loss on Sandy, Sale of Plane-Leasing Unit

Source: WSJ - Erik Holm

Posted on 22 Feb 2013 by Neilson

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AIGAmerican International Group Inc. (AIG) swung to a fourth-quarter loss on costs from superstorm Sandy and a charge tied to the sale of its plane-lease unit.

In its first earnings report since the U.S. government sold the last of its AIG shares, the insurer, which reported after the close of regular trading, said about $1.3 billion in costs were tied to Sandy, the powerful storm that devastated parts of the Northeast last October.

The figure was in line with the estimate the company gave in December and pushed operating results at AIG's property-casualty operation to a $945 million loss, a reversal from a profit of $367 million in the same period a year earlier. The division's latest results included a $116 million charge to boost reserves for policies it sold in prior years.

But other operating results outpaced Wall Street expectations, pushing the shares up 4.1% in after-hours trading, to $38.80.

AIG posted a loss of $3.96 billion, or $2.68 a share, compared with a profit of $21.5 billion, or $11.31 a share, in the year-ago period. The insurer's life-insurance and retirement-services business earned an operating profit of $1.09 billion, up 20% from a year earlier.

The company had disclosed a long-awaited plan to sell a 90% stake in its plane-lease unit, International Lease Finance Corp. in December. In conjunction with the announcement of the sale to a Chinese consortium, the company had said it would take a loss of about $4.4 billion on the transaction.

AIG's latest results indicate it may have saved more than $1 billion in 2012 from tax breaks approved by the U.S. government during the financial crisis. The tax benefits mostly involve tax-loss carry forwards. The concept is that losses from past years can be "carried forward" to reduce future earnings, and thus the tax bill. AIG didn't immediately respond to a request for comment on the tax savings.

AIG ended 2012 with $16.7 billion of net deferred tax assets, down from $18.3 billion at the end of 2011.

The tax benefits have drawn criticism from some tax specialists, academics and politicians. Last year, Elizabeth Warren, who successfully ran for a Senate seat in 2012, dubbed them a "stealth bailout."

AIG Chief Executive Robert Benmosche has said that improving results at both the property-casualty unit and the life insurer are critical for AIG's postbailout future.

In a memo to employees on Thursday, Mr. Benmosche said the company "didn't meet all our business goals in 2012, which will mean some short-term incentive pools will be smaller this year than last year."

Thanks to Sandy, the company spent $1.25 on claims and expenses for every dollar it collected in premiums. The property-casualty unit's premiums stayed roughly flat at about $7.8 billion.

AIG's life-insurance unit benefited from a $343 million increase in investment income to $2.7 billion. The company's alternative investments, a category that includes hedge funds and private equity, helped fuel the increase. The category that counts premiums and deposits, among others, fell about 12% to about $5.2 billion on a decline in fixed-annuity deposits.

The company's mortgage-insurance operation reported a wider operating loss of $45 million, compared with a $25 million loss in the same period a year earlier. The latest result came as the company boosted reserves amid less optimistic projections about how often delinquent homeowners will come current on insured mortgages.

The quarter was also notable for the sale by the Treasury Department of the last of its common shares in AIG. The government once owned more than 90% of the company after bailing it out during the financial crisis. The Treasury still holds some AIG warrants.