New York: AIG, the giant insurer bailed out by the US government, posted its second straight quarterly profit on Friday, helped by recovery in the value of its investments, but its underlying business remained weak, and shares fell.
“It is clearly still a troubled company,” said Rob Haines, an analyst with CreditSights in New York. “Its operations are clearly weaker than some of its higher quality competitors. AIG used to be one of those companies.”
AIG’s shares, which rallied more than 8% on Thursday, fell more than 9% Friday morning.
The insurer’s latest results included $1.95 billion in special gains, sending AIG into the black once more, offsetting declines in operating revenue at its insurance businesses.
Net income was $455 million, or 68 cents a share, compared with a loss of $24.47 billion, or $181.02 a share, in the year-earlier quarter. Its profit in the second quarter was $1.8 billion.
While insurers widely reported a drop in business in the third quarter, as the effects of rising unemployment and a contraction in spending reduced demand for coverage, the situation at AIG may be especially acute since it had already lost business in the wake of its taxpayer bailout.
Chief executive Robert Benmosche, not yet three months into the job, said AIG employees were working hard to “preserve the strength of our insurance businesses in a challenging market.” The comments were made in the company’s earnings statement.
AIG has received up to $180 billion of federal aid, including more than $80 billion in loans, and is now 80% owned by US taxpayers. It got the aid after soured mortgage investments nearly drove it into bankruptcy last year.
The gains in the latest quarter included improvement in the value of securities held by AIG Financial Products, basically a reversal of some of the losses that were largely responsible for AIG’s massive losses in 2008.
CreditSights’ Haines said it was a positive that AIG did not have any “bombshell” investment losses in the latest quarter, but that it would need to make real strides in repaying its taxpayer debts, and show several quarters of growth within its insurance operations, before anyone could take it seriously again.
AIG’s general insurance operations reported a 13% decline in net policy sales. Life insurance and retirement services had a 16 percent drop in premium income.
However, the general insurance and life insurance divisions both had operating profit in the quarter, driven by higher net investment income, compared with losses a year earlier.
Excluding realized gains and losses, AIG’s adjusted third-quarter profit was $1.9 billion, or $2.85 a share. On that basis, four analysts on average expected $1.98 a share, according to Thomson Reuters I/B/E/S.
AIG said it continued to make strides in winding down AIG Financial Products. The unit’s derivative portfolio was cut by 13 percent in the quarter to about $1.1 trillion.