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AIG Slips to Loss in Q4, Raises Dividend & Share Buyback

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American International Group Inc.AIG reported fourth-quarter 2015 operating loss of $1.10 per share, wider than the Zacks Consensus Estimate of a loss of 90 cents. The company had posted earnings of 97 cents in the year-ago quarter.

Results suffered due to adverse prior-year loss reserve development, and lower returns on alternative investments.

General operating expenses decreased 9.2% year over year to $2.7 billion.

Behind the Headlines

Commercial Insurance posted a pre-tax operating loss of $2.1 billion, while operating profit was $1.2 billion in the year-ago quarter. The loss during the quarter was primarily due to a $3.0 billion charge for adverse prior-year loss reserve development in Property Casualty. Lower net investment income in Property Casualty and Institutional Markets as a result of lower returns on alternative investments also contributed to the loss.

Pretax operating income at Consumer Insurance plummeted 18% year over year to $753 million. The decline stemmed from lower net investment income due to lower returns on alternative investments in hedge funds, primarily in Retirement. Also, a decline in underwriting income in Personal Insurance, mainly due to less favorable net prior-year loss reserve development dragged down the segment's results.

Financial Position

At quarter end, AIG's liquidity decreased 18% sequentially to $9.2 billion on account of the initiatives been taken toward capital management.

At quarter end, AIG's book value per share rose 1.2% year over year to $58.94.

Operating return on equity was a negative 7.3% compared with positive 6.8% as of Dec 31, 2014.

Share Buyback and Dividend Update

Along with the earnings release, the company's board of directors today authorized the repurchase of an additional $5.0 billion of AIG common shares and increased the quarterly dividend by 14% to 32 cents per share.

Restructuring Initiatives

Under immense pressure from investor Carl Icahn, AIG took a number of restructuring initiatives in the past four months to focus on organizational simplification, operational efficiency and business rationalization. These actions include the repurchase of additional shares with an aggregate purchase price of up to $3.0 billion and the formation of a new Executive Leadership Team structure comprising 10 heads - all veterans in their respective fields who would work toward attaining the strategic priorities of the company. The company also announced slashing of several jobs, including some senior positions. Moreover AIG announced a planned IPO of up to 19.9% of United Guaranty Corporation, as initial steps to separate itself from this mortgage insurance unit. AIG also announced an agreement to sell operations in four Central American countries.

Additionally, last month, the company announced the sale of AIG Advisor Group, which is expected to close in the second quarter of 2016.

Through these restructuring initiatives, the company expects to lower its operating expenses by $1.6 billion by 2017.

Zacks Rank

Currently, AIG carries a Zacks Rank #3 (Hold).

Performance of Other Multi-Line Insurers

The bottom line at CNO Financial Group, Inc. CNO outperformed the Zacks Consensus Estimate while Assurant, Inc. AIZ , Prudential Financial Inc. PRU missed the same in the fourth quarter.

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AMER INTL GRP (AIG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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