American International Group Inc.
) reported fourth-quarter 2012 operating earnings per share of 20
cents, significantly beating the Zacks Consensus Estimate of a
loss of 9 cents. However, earnings fell from the year-ago
quarter's 77 cents per share. Consequently, operating net income
plunged to $29 million from $1.5 billion in the year-ago
On a GAAP basis, AIG reported a quarterly net loss of $4.0
billion or $2.68 per share as compared with net income of $3.4
billion or $2.04 per share in the year-ago quarter. The reported
quarter primarily included a loss from the sale of International
Lease Finance Corp. (ILFC) of $4.33 billion, legacy and other tax
adjustments of $200 million and net realized capital loss of $52
million. These were partially offset by legal settlements of $129
million and deferred income tax valuation allowance release of
Results reflected operating growth in the life insurance
business and higher investment income along with stronger
underwriting margins and higher profitability in Direct
Investment Book (DIB). These factors also drove the book value
per share and return on equity (ROE), while also enhancing
capital efficiency. However, higher interest expenses, lower
premiums and higher catastrophe losses offset most of the
upsides. Volatile equity markets, widening credit spreads and
reduced interest rates were the other dampeners.
(property-casualty (P&C) insurance) business - conducted
through Commercial & Consumer Insurance - reported an
operating loss of $945 million against an income of $367 million
in the year-ago quarter. The year-over-year downside primarily
resulted from a catastrophe loss of $2.0 billion owing to
Hurricane Sandy. This also drove the claims and operating
expenses higher and led to an underwriting loss of $2.16
Excluding the catastrophe loss, operating income surged to
$1.0 billion in the reported quarter, driven by growth from
higher value business, improvement in pricing trends, strong
underwriting margins and higher investment income.
Subsequently, combined ratio deteriorated to 125.1% compared
with 107.1% in the prior-year period, reflecting higher
catastrophe losses and adverse reserve development. However,
premiums earned declined 3.9% year over year to $8.61 billion on
the back of unfavorable currency, risk selection, business mix
and retention. Both commercial and consumer insurance segments
reported losses on account of changes in business mix and higher
investments in direct marketing.
Operating income at
(life insurance and retirement services) escalated 19.5% year
over year to $1.09 billion based on higher net investment income
and policy fees, partially offset by lower base yields and
interest crediting rates. Additionally, AUM rose 13% year over
year to $290.4 billion as of Dec 31, 2012.
Nevertheless, premiums, deposits and other considerations
declined 11.9% year over year to $5.2 billion, primarily driven
by a significant decline in fixed annuities amid the low rate
environment. Conversely, group retirement products and individual
variable annuities witnessed modest improvement.
- conducted through United Guaranty Corporation (UGC) - recorded
an operating loss of $45 million, wider than a loss of $25
million in the year-ago quarter, driven by increased loss
reserves. Consequently, net premiums written rose 18% year over
year to $236 million.
- conducted through AIG Financial Products Corp (AIGFP) and other
non-aircraft leasing - reported operating income of $260 million
versus $502 million in the year-ago period.
In addition, AIG's Direct Investment book (DIB), comprising
the Matched Investment Program (MIP) and the non-derivative
assets and liabilities of the previous AIG Financial Products
Corp. (AIGFP) portfolios, recorded operating income of $509
million against a loss of $27 million in the year-ago period.
Global Capital Markets, consisting of AIG Markets Inc. and the
remaining AIGFP derivatives portfolio, recorded an operating
income of $300 million, significantly improving from $46 million
in the year-ago quarter. Additionally, the fair value of the AIA
Group Ltd. (AIA) ordinary shares increased $240 million from the
business, conducted through ILFC, has been declared a
discontinued operation following the decision to sell 90% of ILFC
in Dec 2012, to a Chinese consortium. The deal awaits regulatory
approvals and is scheduled to culminate by the second quarter of
Full-Year 2012 Highlights
For full-year 2012, AIG's operating EPS stood at $3.93,
exceeding both the Zacks Consensus Estimate of $3.82 and $1.16
recorded in 2011. Operating net income escalated to $6.6 billion
from $2.1 billion in 2011. However, on a GAAP basis, including
adjustments related to discontinued operations, legal, tax and
others, net income plunged to $3.4 billion or $2.04 per share in
2012 from $20.6 billion or $11.01 per share in 2011.
Total revenue at SunAmerica improved 4.2% year over year to
$15.95 billion in 2012, while premiums earned at Chartis declined
2.3% to $34.87 billion.
Shareholders' equity totaled $98.0 billion at the end of Dec
2012, down from $101.5 billion at the end of 2011.
At the end of 2012, AIG's book value per common share,
including accumulated other comprehensive income, escalated 24%
year over year to $66.38. Further, operating ROE improved to 7.2%
at 2012-end against 2.7% recorded at 2011-end.
Government Loan and Credit Update
During the reported quarter, the U.S. Treasury wound up its
ownership in AIG by selling the remaining 15.9% stake for $7.61
billion. The Federal Reserve (Fed) has earned an additional
profit of $22.7 billion, apart from the $182.3 bailout loan
amount from AIG.
Accordingly, the remaining 234.2 million shares were priced at
$32.50 a share, for a total amount being about $7.61 billion.
However, the Fed will continue to retain the warrants in order to
buy about 2.7 million shares of AIG in the future, the sale of
which is likely to generate additional positive returns to the
U.S. taxpayers. Moreover, no shares were purchased by the
In Dec 2012, AIG also wound up its remaining stake at AIA for
about $6.5 billion and gained $240 million. The company realized
total gains of $2.1 billion in 2012.
AIG carries a Zacks Rank #4 (Sell). Other strong performers in
the insurance sector include
CNO Financial Group Inc.
Assured Guaranty Ltd.
), all of which carry a Zacks Rank #1 (Strong Buy).
AEGON N V (AEG): Free Stock Analysis Report
ASSURED GUARNTY (AGO): Free Stock Analysis
AMER INTL GRP (AIG): Free Stock Analysis
CNO FINL GRP (CNO): Free Stock Analysis
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