AIG Profit Falls 27% -- Update

By Dow Jones Business News, 

By Leslie Scism

American International Group Inc. said first-quarter profit fell 27% on a spike in costly insurance claims and a decline in premiums at its core property-casualty unit.

Net income fell to $1.6 billion, or $1.09 a share, from $2.2 billion, or $1.49 a share, in the year-earlier quarter, which was an unusually strong period helped by fewer disaster claims and a release of reserves.

AIG's operating income, which excludes realized capital gains and losses and is closely watched by investors, fell to $1.21 a share from $1.34 a share a year earlier.

While that exceeded Wall Street expectations of $1.07 a share as compiled by Thomson Reuters, AIG fell 2.3% to $ 51.52 in after-hours trading, with analysts pointing to weaker-then-expected property-casualty earnings. Pretax operating income at that unit fell 26% to $1.16 billion.

AIG has been refashioning itself to focus on global property-casualty insurance and U.S. retirement services, and the two units are essential to Chief Executive Officer Robert Benmosche's vision for the company's continued turnaround.

AIG received a government bailout during the financial crisis, which was fully repaid as of 2012.

Cathy Seifert, an equity analyst with Standard & Poor's, called the results "a really mixed quarter." She said AIG's drive to expand in the competitive car- and home-insurance business "may have led them to underprice."

She said AIG executives may have "to calm some concerns" in Tuesday's earnings conference call, as analysts press on whether the mixed results suggest "a hiccup in the [company's] recovery" or something worse.

Janney Capital Markets analyst Larry Greenberg said he was "underwhelmed with the results" and pointed out that the quarter was aided by unexpectedly strong earnings from AIG's "Direct Investment Book," which includes certain assets and liabilities from its legacy Financial Products unit. This accounted for most of a $0.13 addition to per-share earnings.

Mr. Greenberg also noted AIG's share buyback for the quarter ran above his forecast, with the company spending $867 million in the quarter to repurchase 17.4 million shares, more than his expected $500 million.

The company ended the first quarter with about 1.46 billion shares, down from 1.48 billion one year ago.

AIG's closely watched operating income, which excludes realized capital gains and losses, fell to $1.78 billion, or $1.21 a share, compared with $1.98 billion, or $1.34 a share a year earlier.

While the unit benefited from a rise in prices and a shift in the types of coverage that it sells, the most-recent results were pulled down from a year earlier by higher catastrophe costs, and a larger number of so-called severe losses, which are large claims that aren't catastrophe specific. There was also a 5% drop in net investment income to $ 1.26 billion.

Net premiums written in the property-casualty unit, an indicator of future revenue reflecting the value of coverage sold in the quarter, slipped 1% to $8.33 billion.

Pretax profit at AIG's other main unit, its life-and-retirement operation, rose 2% to $1.42 billion. The performance was driven by higher income on financial products charging fees and increased profitability from products tied to interest rates.

The unit posted a 28% increase in premiums and deposits, contributing to growth in assets under management. Net investment income fell 2% to $2.82 billion, the company said.

The property-casualty unit reported a combined ratio of 101.2, a nearly four-percentage-point increase over the year-earlier period, meaning AIG spent about $1.01 on claims and expenses for every dollar it collected in premiums. A year ago, the combined ratio was 97.3.

The higher ratio came partly from an increase in catastrophe costs, which were $262 million for the most-recent quarter, compared with $41 million in the year-earlier quarter.

Severe losses jumped to $186 million from $60 million. The unit also boosted claims reserves by $162 million, compared with net favorable development of $52 million in the prior-year period.

Mr. Benmosche said in an employee memo related to the earnings that AIG is positioning itself "to thrive well into the future as we increase operational efficiency and reduce our expenses, invest in technology, and focus on developing our people...While we have made great strides in transforming AIG, we still have work to do."

Write to Leslie Scism at

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