AIG earnings point to room for improvement-analysts

Thu Oct 31, 2013 7:13pm EDT

A man exits the AIG headquarters offices in New York's financial district, January 9, 2013. REUTERS/Brendan McDermid

A man exits the AIG headquarters offices in New York's financial district, January 9, 2013.

Credit: Reuters/Brendan McDermid

(Reuters) - American International Group Inc reported earnings nearly in line with expectations on Thursday, but the stock fell after hours as analysts still saw room for improvement in the insurer, which almost went under during the financial crisis.

AIG, which saw sour derivative bets threaten the company's future five years ago, saw stronger commercial lines business. Analysts said they had expected better results in its consumer lines business.

The company also matched its 10-cent dividend of the second quarter and said that it bought back $192 million in stock in the three months ended September 30.

AIG "is becoming a normal company," Sanford C. Bernstein & Co analyst Josh Stirling said.

"They're making great progress in fixing their underwriting in their commercial lines business, but still have more progress to make in consumer lines. They really need to get margin improvements in both," he said.

Commercial underwriting saw net premiums earned edge down 2 percent to $5.142 billion from the year-ago quarter, but the combined ratio improved to 100.2 from 106.0.

A combined ratio below 100 indicates an underwriting profit, meaning an insurer is receiving more in premiums than it is paying out in claims.

In its consumer underwriting, AIG saw a 6 percent dip in net premiums earned to $3.27 billion. That combined ratio rose to 99.9 from 98.8 in the third quarter of last year.

And the company also benefited from factors beyond its control, such as a favorable tax rate, noted Meyer Shields of Keefe, Bruyette & Woods, Inc.

"I think the stock's going to have a tough day tomorrow," he said.

BMO Capital Markets analyst Charles Sebaski pointed to stalled progress in the property and casualty unit.

"We did not see any meaningful improvement in the P&C underwriting," he said.

Net premiums earned in the company's property casualty unit fell 4 percent to $8.43 billion in the quarter ended September 30, while the combined ratio improved 3.4 points to 101.6, indicating the business is still not booking an underwriting profit.

Shares fell 0.62 percent in the Thursday session to close at 51.65. Shares of the company fell 3 percent in after-hours trading after the results.

The company's dividend in the second quarter was its first since receiving the first portion of a U.S. taxpayer-funded bailout in 2008 that eventually topped $180 billion. AIG finished paying back those funds early this year.

"We continue to remain optimistic about the future," Chief Executive Robert Benmosche said in a statement.

In a separate filing, the company said the sale of its ILFC aircraft leasing unit had not yet closed and that the sale could still be terminated.

"We continue to consider ILFC as a non-core business and we are continuing to pursue other options including an alternative sale or an initial public offering," the company said in the filing.

The U.S. insurer's net income rose 17 percent to $2.17 billion, or $1.46 per share, from $1.86 billion, or $1.13 per share, a year earlier.

On an operating basis, the company earned $1.4 billion, or 96 cents per share.

Analysts on average had expected earnings of 94 cents per share, according to Thomson Reuters I/B/E/S.

(Reporting by Aman Shah in Bangalore and Luciana Lopez and Lauren Tara LaCapra in New York; Editing by Maju Samuel and Andrew Hay)

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Comments (4)
Excuse me…..I have a question.

Aren’t insurance companies supposed to lose money once in awhile?

Oct 31, 2013 5:26pm EDT  --  Report as abuse
2Borknot2B wrote:
It is how and why the loss was significant. The loss was due to a corrupt act that intentionally set up the sub prime scam, and manipulation of the shadowy derivative and options markets.

Oct 31, 2013 5:46pm EDT  --  Report as abuse
I understand what happened back in 2007 but this loss seems related to property and casualty. I just thought that occasionally property and casualty insurers were supposed to lose money. I think they call it paying out claims.

Oct 31, 2013 7:07pm EDT  --  Report as abuse
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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