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AIG's Q3 Losses at $4.1 Billion, Driven by Volatile Markets, Plane-Leasing Write-Off

Source: Dow Jones - Erik Holm

Posted on 04 Nov 2011

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Losses at American International Group Inc. (AIG) widened by 63% to $4.1 billion in the third quarter, driven by volatile markets, a write-off at its plane-leasing unit and profit declines in its main insurance businesses.

AIG's operating loss of $3 billion, or $1.60 a share, missed analysts' consensus estimate of a 63-cent loss.

Separately, the New York-based insurance company said its board had approved a repurchase of up to $1 billion in common shares. The buyback represents the company's first since it's bailout by the federal government in 2008.

Third-quarter results were hurt by a $2.3 billion decline in the value of the company's holdings of Asian life insurer AIA Group Ltd. (AAGIY, AAIGF) and another $931 million drop tied to AIG's interest in Maiden Lane III, a bailout-era facility designed to remove some mortgage-linked instruments from the insurer's books.

AIG once owned all of AIA, but now must reflect changes in AIA's stock price in its quarterly results. The insurer has considered selling some of its holdings to limit such wild swings in the future.

The losses at Maiden Lane III were caused by lower interest rates and wider credit spreads on the U.S. housing-related assets in the facility.

SunAmerica Financial Group, AIG's domestic life insurance and retirement services business, had a pre-tax operating income of $444 million, a 57% decline from the same period a year earlier. Results were hurt by a decline in investment income, charges at its annuity business tied to equity declines, and a decline in the value of its investment in another bailout-era vehicle that holds subprime bonds.

Variable annuity deposits of $800 million represented a 44% increase from the same period a year earlier as SunAmerica tweaked the product. Retail life insurance sales grew 15%.

Chartis's operating income of $442 million represented about a 59% decline from a year earlier as the property-and-casualty unit suffered from $574 million in catastrophe losses. The catastrophe costs, the majority of which were from August's Hurricane Irene, were a drastic increase from last year's $72 million in disaster claims during a relatively uneventful third quarter.

The combined ratio at Chartis was 106.4, meaning the company spent more than $1.06 on claims and expenses for every dollar it collected in premiums. A year ago, the combined ratio was 99.3.

AIG's plane-leasing unit, International Lease Finance Corp., took a $1.5 billion write-down on nearly 100 airplanes in its fleet. AIG Chief Executive

Officer Robert Benmosche said the write-down was needed "in light of technological developments in the aircraft industry [and] fleet management announcements by certain airlines."

AIG's mortgage insurance operation lost $96 million, an improvement from the $124 million it lost in the same period a year earlier.
Book value per share was $45.30, a 7.9% decrease from the end of the second quarter.

The U.S. government currently owns 77% of AIG, down from the 92.1% it owned until earlier this year. The stock fell 15% since the late-May share sale through the close of trading Thursday. The drop may delay plans for the Treasury Department to sell off more of its stake before the end of the year.