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AIG Posts Profit on Asset Sales, But Core Insurance Business Turns In Weak Performance

Source: WSJ - Serena Ng, Erik Holm

Posted on 25 Feb 2011

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American International Group Inc. (AIG) booked a huge profit from asset sales but some of its remaining businesses sounded a sour note.

Aided by large reported gains on overseas units the giant insurer sold to repay its government bailout, AIG on Thursday posted net income of $11.2 billion in the fourth quarter.

But the company's core insurance businesses, whose growth prospects will factor heavily in a large stock offering that AIG is preparing for this spring, turned in a weaker performance during the period. Overall, AIG's remaining units reported an operating loss of $2.2 billion in the fourth quarter, versus a $1.3 billion operating loss a year ago; their full-year loss was $898 million.

Chartis, the New York company's global property- and casualty-insurance business, reported a $4 billion operating loss for the fourth quarter after booking a $4.2 billion net reserve charge to reflect sharply higher claims estimates for asbestos, workers' compensation and other types of insurance policies sold in previous years.

Most of the higher reserves were on business written many years ago, but a portion was for policies sold in 2008 and 2009. The latter could fan investor concerns about the profitability of business Chartis took in the wake of AIG's bailout, when it struggled to retain corporate customers.

Chartis's net premiums rose 9.4% in the fourth quarter, but excluding a Japanese business it acquired, premiums fell 3.3% amid a highly competitive and softening market for commercial insurance.

AIG's other major insurance business, a U.S. life insurer called SunAmerica Financial Group, saw fourth-quarter operating income slip 4% to $1 billion as its sales of life insurance, fixed and variable annuities and other products dropped 6% year on year to $4.9 billion.

International Lease Finance Corp., AIG's giant aircraft-leasing business, swung to a $606 million fourth-quarter operating loss after recording large impairment charges to reflect lower estimated values of certain aircraft in its fleet.

During the fourth quarter, AIG completed the sale of a large overseas life insurer to MetLife Inc. and sold a majority stake in pan-Asian life insurer AIA Group Ltd. via an initial public offering in Hong Kong.

These and other asset sales enabled AIG to book a $17.6 billion gain that took it into the black for the fourth quarter and full year 2010. But that reported gain is largely academic because the cash proceeds from those sales were used to repay the Federal Reserve Bank of New York in the first quarter of 2011

AIG's annual report, meanwhile, showed how much the company has shrunk following its asset sales. At the end of 2010, AIG and its subsidiaries had 63,000 employees, down from 96,000 a year ago.
or the full year, AIG reported net income of $7.8 billion, versus a $10.9 billion net loss in 2009 and a far cry from the record $99 billion loss it posted in 2008.

On Friday morning, AIG officials led by Chief Executive Robert Benmosche will host AIG's first earnings conference call in two years to discuss the company's performance and outlook for its businesses. In a statement Thursday, Mr. Benmosche said AIG is now focused "on long-term growth and building value at our ongoing insurance operations and other businesses" and will devote attention to managing its risk and capital, and achieving cost savings throughout the company.

Many Wall Street analysts dropped coverage of AIG after its near-collapse in 2008. Most large brokerages are likely to resume covering the company as AIG prepares for a stock offering this spring that could top $20 billion and bring the government closer to recouping its massive investment in the insurer.

To sell as much as $66 billion in shares, or a 92.1% stake currently held by the Treasury Department over the next two years, AIG will have to get a wide range of investors, including many large mutual funds, to buy its shares.

Separately, AIA, of which AIG is now a one-third owner, released its first set of results as a public company, reporting a a 54% jump in net earnings to $2.7 billion for the full year 2010.


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