UPDATE: AIG Posts $1.86 Billion 3Q Profit, Beats Expectations
--AIG reports $1.86 billion profit, reversing from a net loss of $3.99 billion in last year's third quarter
--Operating income of $1 a share beats consensus
--CEO Benmosche says its "too early" to discuss financial effect of Hurricane Sandy
(Adds further details on third-quarter results in the 15th-18th paragraphs and results for Hartford Financial Services in the 21st-23rd paragraphs. Updates stock price.)
By Erik Holm and Leslie Scism
American International Group Inc. (AIG) swung to a third-quarter profit of $1.86 billion, driven by improvements in nearly every aspect of its business.
AIG's operating income of $1.6 billion, or $1 a share, beat the 86-cent consensus estimate of analysts surveyed by Thomson Reuters in the first earnings report since the U.S. Treasury Department ended its majority ownership of a company that in 2008 nearly toppled the financial system.
Operating profit at AIG's property-casualty operation rose 60% to $786 million before taxes as catastrophe costs fell by about half to $261 million. The third quarter was a fairly uneventful one for natural disasters, though the fourth quarter already promises to be costly for AIG and other insurers thanks to Hurricane Sandy.
Chief Executive Officer Robert Benmosche said AIG's offices in lower Manhattan, including its headquarters, were without power as a result of this week's storm, but that the company had been able to "operate nearly without interruption." He said in a statement Thursday it was "too early to provide an estimate of the financial impact of the storm."
Operating results at AIG's domestic life insurance and retirement services business nearly doubled to $826 million before taxes. Such operating figures exclude some investment results.
Mr. Benmosche has said that improving results at both the property-casualty unit and the life insurer are critical to AIG's post-bailout future as the company works to meet the "aspirational goals" it laid out last year. The goals include boosting AIG's return on equity to over 10% by 2015, slashing costs and deploying up to $30 billion in capital on share buybacks, dividends or acquisitions.
"We are seeing continued momentum, and we're building for the future by creating a more streamlined, efficient, and nimble company," Mr. Benmosche said in the statement.
Third-quarter results were helped by gains of $527 million in the company's minority stake in Asian life insurer AIA Group Ltd. (AAGIY, AAIGF, 1299.HK), whose Hong Kong-listed shares rose during the quarter. In last year's third quarter, AIA subtracted $2.32 billion from AIG's results.
AIG once owned all of AIA, but now must reflect changes in AIA's stock price in its quarterly results. The company sold off more of its AIA holdings in September to help fund an effort to buy back more of its shares from the U.S. Treasury Department.
AIG's interest in Maiden Lane III, a bailout-era facility designed to remove some mortgage-linked instruments from the insurer's books, added $330 million to operating profit before taxes after costing the company $931 million in last year's third quarter.
The Federal Reserve Bank of New York sold the last of the securities in the portfolio in August of this year, exiting at a profit for both the Fed and AIG.
Net income of $1.86 billion, or $1.13 a share, was a sharp reversal from a net loss of $3.99 billion, or $2.10 a share, in the same period a year earlier.
Book value per share was $68.87, a 14% increase from book value per share of $60.58 at the end of the second quarter. The increase was driven in part by AIG's share buybacks from the federal government.
AIG shares have long traded below book value. They fell 1.3% to $34.75 after hours.
AIG's property-casualty division took a $145 million charge to boost reserves for policies it sold in prior years.
AIG's combined ratio improved slightly to 105, meaning it spent $1.05 on claims an expenses for ever dollar it collected in premiums. The property-casualty unit's commercial insurance operation ran an underwriting loss while the division that sells coverage to consumers had an underwriting profit. AIG said expenses rose in the property-casualty unit in part because of marketing efforts and hiring of new talent.
AIG's life-insurance unit benefitted from higher investment income and rising equity markets. The company scaled back the amount of annual interest it pays many annuity and other contract holders. Industrywide, many companies have been ratcheting back until payments are at or near the minimum required by their contracts as a way to offset lower investment yields.
AIG's plane-leasing unit, International Lease Finance Corp., had a $39 million operating profit before taxes, reversing a year-ago loss. In last year's third quarter, ILFC recorded $1.5 billion of impairment charges and fair value adjustments as it wrote down the value of its fleet. This year, impairment charges were $98 million.
AIG's mortgage-insurance operation reported pretax operating income of $3 million, after a loss of $98 million a year ago. New insurance written on domestic first-lien mortgages nearly doubled to $10.7 billion after the unit expanded its sales force to grab market share in a sector where some rivals have been forced to stop selling new coverage.
Hartford Financial Services Group Inc. (HIG), another big seller of property-casualty insurance that has a large group benefits unit among other operations, also posted strong gains in net and operating income. The company's property-casualty business benefited from "strong pricing momentum and low catastrophes" in the third quarter, said Chief Executive Liam McGee. The company said increases for standard commercial policy renewals averaged 8%, and auto and homeowners' insurance rose 4% and 6%, respectively.
Hartford's net income jumped to $401 million or 83 cents a diluted share, from $60 million, or 11 cents a share in the year-earlier quarter, while "core" earnings, which it says reflects its operations and is followed by analysts, rose to $378 million, or 78 cents a share, from $50 million, or 8 cents a share.
In an interview, Mr. McGee said it is too early to characterize the damage left by Hurricane Sandy, saying in some areas Hartford representatives "are still waiting for clearance from local authorities to get access and actually look at damage to properties." He said Thursday "was the first day we could get adjusters into parts of Long Island," one of the hardest-hit areas of New York. He predicted Sandy would be "among the top-five storms in history" but said "it is a manageable exposure to us."
