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AIG posts 2nd straight profit, insurance weak

AIG posts 2nd straight profit, insurance weak
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First Published: Fri, Nov 06 2009. 08 57 PM IST
Updated: Fri, Nov 06 2009. 08 57 PM IST
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.
Benmosche warned the company could continue to see earnings volatility in future quarters, including as a result of charges related to its ongoing restructuring.
The company had been trying to sell off major assets to raise funds to repay the United States. But it has struggled to find buyers willing to pay its asking price for assets.
In the fourth quarter it expects to significantly reduce its federal loan balance as it consummates a $25 billion pact to give the Federal Reserve a preferred stake in two of its largest life insurance units, AIA and Alico.
However, it will record a charge of about $5 billion related to that deal, and another $1.4 billion charge from its $2.15 billion October sale of Taiwan life insurance unit Nan Shan.
AIG shares, after rising more than 8% on Thursday, were down more than 9% at $35.52.
“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.
Benmosche warned the company could continue to see earnings volatility in future quarters, including as a result of charges related to its ongoing restructuring.
The company had been trying to sell off major assets to raise funds to repay the United States. But it has struggled to find buyers willing to pay its asking price for assets.
In the fourth quarter it expects to significantly reduce its federal loan balance as it consummates a $25 billion pact to give the Federal Reserve a preferred stake in two of its largest life insurance units, AIA and Alico.
However, it will record a charge of about $5 billion related to that deal, and another $1.4 billion charge from its $2.15 billion October sale of Taiwan life insurance unit Nan Shan.
AIG shares, after rising more than 8% on Thursday, were down more than 9% at $35.52.
Net profit 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.
The results included $1.95 billion in special gains, including from improvement in the value of securities held by AIG Financial Products, the unit largely responsible for AIG’s massive losses in 2008, which led to the US bailout.
Adjusted profit, excluding realized gains and losses, was $1.9 billion, or $2.85 a share. On that basis, analysts on average expected $1.98 a share, according to Thomson Reuters I/B/E/S.
Since September 2008, US taxpayers have put up to $180 billion at AIG’s disposal, including more than $80 billion in loans the company has been trying to repay through asset sales.
Once the world’s largest insurer, AIG nearly collapsed under massive losses and collateral demands from credit default swaps it sold to financial firms to guarantee residential mortgage investments.
Its shares initially fell more than 10% in premarket trade but later were down just 4% at $37.60.
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First Published: Fri, Nov 06 2009. 08 57 PM IST
More Topics: Company results | AIG | Profit | Bailout | Insurance |