Profit at American International Group Inc. rose 27% to $2.3 billion in the second quarter, driven by improved results at the insurance operations the company has touted as essential to its post bailout future.
AIG’s operating income of $1.9 billion, or $1.06 a share, was nearly double Wall Street’s consensus estimate. Operating profit excludes some investment results.
Operating results at AIG’s domestic life-insurance and retirement-services business rose 29% to $933 million before taxes, while the company’s global property-casualty insurance arm saw profit jump 20% to $936 million.
Chief Executive Robert Benmosche has said that improving results at both operations are critical for AIG to meet various “aspirational goals” the company laid out last year. The goals include boosting AIG’s return on equity to over 10% by 2015, slashing costs and deploying up to $30 billion in excess capital on share buybacks, acquisitions and other activities.
AIG was rescued from the brink of collapse in 2008 by the U.S. government, which committed as much as $182.3 billion in taxpayer funds to support the company. Most of the aid has been repaid, and the U.S. now owns 61% of AIG and plans to sell its stake to recoup the last $30 billion in taxpayer funds outstanding.
The government, which has sold nearly $12 billion in AIG stock this year, could hold another public offering to sell more shares now that AIG has reported its results.
“We are close to achieving our goal of returning to America all that it provided to AIG during the crisis, plus a profit,” Mr. Benmosche said in a statement.
AIG has been stockpiling billions of dollars in cash that it is expected to use to buy back a large portion of the government’s remaining ownership, a move that could help reduce the U.S. to a minority shareholder by this fall.
The company said Thursday that it has received $6.1 billion from sales conducted by the Federal Reserve Bank of New York of complex mortgage securities AIG used to insure, and expects to receive an additional $1.9 billion in mid-August. It also bought some of the mortgage assets the New York Fed sold.
The company’s second-quarter results, meanwhile, were hurt by a $493 million decrease in the value of its minority stake in Asian life insurer AIA Group Ltd., whose Hong Kong-listed shares fell during the quarter. AIG can sell its remaining 19% ownership in AIA, which is valued at over $7 billion, in early September.
AIG also recorded a $719 million increase in its estimated legal liabilities during the quarter. The company and its executives have been sued by many U.S. and foreign investors who lost money when AIG’s shares plunged in 2008 at the time of its bailout. These shareholders have alleged that AIG made false and misleading statements about its financial health and exposure to troubled subprime mortgage assets in the months leading up to the company’s near collapse.
International Lease Finance Corp., AIG’s aircraft-leasing arm, reported flat second-quarter profit of $88 million, after booking impairment charges of $75 million for some aircraft. AIG is waiting for better market conditions to float the unit in an initial public offering.
AIG reported book value per share of $60.58 at the end of June. Its shares have been trading at a deep discount to the company’s net worth, and closed flat on Thursday at $30.84.
The combined ratio at Chartis, AIG’s property-casualty operation, was 102.4, meaning the company spent about $1.02 on claims and expenses for every dollar it collected in premiums. A year ago, the combined ratio was 104 amid a more-damaging string of natural disasters. AIG adopted the Chartis name for its property-casualty company in 2009 amid widespread furor over its bailout. The unit will drop the name in favor of AIG’s this fall.
At SunAmerica Financial Group, AIG’s domestic life-insurance and retirement-services business, premiums, deposits and other considerations dropped by roughly $900 million to $5.4 billion as fixed-annuity deposits dropped amid the low interest-rate environment.
Still, the company touted “significant growth” in sales of variable annuities and retail mutual funds, both of which are less sensitive to low interest rates.
AIG’s mortgage-insurance operation saw pretax operating income more than triple to $43 million, reflecting a 17% drop in newly delinquent policyholders and a reduction in estimates of how much it will cost to pay claims incurred in prior quarters.
New insurance written on domestic first-lien mortgages more than doubled to $8.5 billion as the unit grabbed market share in a sector where some rivals have been forced to stop selling new coverage. While AIG and others are still feeling the effects of policies they sold in the run-up to the housing crisis, industry observers say the new business the remaining players are now selling should prove highly profitable over time.