AIG Posts First Profit in Three Quarters on Asset-Sale Gains

American International Group Inc. Chief Executive Officer Robert Benmosche. Photographer: Andrew Harrer/Bloomberg

...american International Group Inc., the insurer selling assets to repay a U.S. bailout, posted its first profit in three quarters on gains from divestitures.
Fourth-quarter net income of $11.2 billion, or $16.60 a share, compares with a loss of $8.87 billion, or $65.51, a year earlier, the New York-based insurer said yesterday in a regulatory filing. The result included $17.6 billion of gains from divested businesses. The insurer posted an after-tax operating loss of $2.2 billion.
Chief Executive Officer Robert Benmosche, 66, raised almost $37 billion last year selling American Life Insurance Co. to MetLife Inc. and divesting a majority stake in AIA Group Ltd. in a public offering. Benmosche is adding to reserves, hiring risk managers, and settling lawsuits and regulatory probes as he prepares the company for private ownership. The U.S. Treasury Department accumulated 92 percent of AIG’s stock and plans to divest its holdings.
“Some of the transactions resulted in larger gains than expected,” said Jonathan Hatcher, a Jefferies Group Inc. analyst in New York. The gains boosted capital and should make the company “feel a little bit more comfortable with the reserve additions that they needed.”
Shareholders’ equity, a measure of assets minus liabilities, rose to $85.3 billion on Dec. 31 from $80.8 billion on Sept. 30. The insurer booked gains on asset sales, including Hong Kong-based AIA and Alico, which operates in countries from Chile to Poland to Japan.

Shares Gain

AIG advanced 41 cents to $40.84 in extended trading in New York yesterday. The insurer is scheduled today to hold its first conference call with analysts since May 2009.
“The initial response has been positive,” Clark Troy, a senior analyst based in Chapel Hill, North Carolina, for Aite Group, said of the results. “They’re absolutely trying to put their best foot forward, and the Street in time will tell whether or not they’ve been successful.”
AIG earned $7.8 billion for the year, compared with losses of $10.9 billion in 2009 and $99.3 billion in 2008. Profit was $6.2 billion in 2007. AIA, the third-largest Asian insurer by market value, posted profit of $2.7 billion for the year ended Nov. 30, a gain of 54 percent.
The operating loss for the Chartis division, which sells coverage of commercial property, corporate boards and airplanes, widened to $3.97 billion from $1.75 billion a year earlier as the company added to reserves. Chartis spent 160.5 cents per every premium dollar on claims and expenses, compared with 132.5 cents a year earlier.

Setting Prices

“Pricing is not as strong as it should be,” Benmosche said in remarks posted on AIG’s website. “We need to remember that, as we do business today, we’ll wake up in a couple years and still be here and have to deal with the prices we’ve charged today, and it’s important that we don’t shortchange the future.”
AIG was forced to bolster reserves in the fourth quarters of 2010 and 2009 after determining it put aside insufficient funds to cover claims on casualty policies sold in prior years. Rivals including Travelers Cos. and Chubb Corp. have booked profits after determining they’d set aside more than needed.
Investment income rose 10 percent to $5.46 billion as alternative assets, including private-equity and hedge-fund holdings, generated $650 million compared with $443 million a year earlier. Buyout funds earned $419 million and hedge funds gained $231 million. AIG had $18.8 billion in so-called partnership assets as of Dec. 31, compared with $18.5 billion on Sept. 30.
The plane business, International Lease Finance Corp., posted a $606 million operating loss, compared with a $344 million gain a year earlier as the company took writedowns on its fleet. Benmosche said in his remarks that AIG may “ultimately find a way to monetize” the plane unit, without providing specifics.
The insurer’s maximum risk on a book of swaps sold to European banks narrowed to $38.1 billion as of Dec. 31, compared with $65.5 billion as of Sept. 30.