AIG announces US$3b buyback as asset sales boost profit

NEW YORK, Aug 3 — American International Group Inc. said it will buy back US$3 billion of stock after second-quarter profit climbed 6.3 per cent, helped by asset sales.

The insurer climbed in extended trading in New York.

Net income advanced to US$1.91 billion, or US$1.68 a share, from US$1.8 billion, or US$1.32, a year earlier, New York-based AIG said yesterday in a statement.

Operating profit, which excludes some investment results, was 98 cents a share, beating by 6 cents the average estimate of 20 analysts surveyed by Bloomberg.

Chief executive officer Peter Hancock has been selling assets and slashing jobs to boost margins after posting losses for three straight periods through the first quarter. He announced a plan in to return US$25 billion to shareholders over two years.

The next month, AIG agreed to give board representation to Carl Icahn and John Paulson, the activists who pressured Hancock to split up the company and focus on property-casualty operations. Icahn said last week that he’s had friendly discussions with the CEO about speeding up asset sales.

“AIG’s second-quarter results show strong improvement towards all the goals the board and I announced in January,” Hancock said in the statement.

The insurer advanced 3.4 per cent to US$56 at 5:17pm in New York. AIG, which reported results markets closed, had slipped 13 per cent this year as of 4pm in New York, compared with the 5.5 per cent gain in the S&P 500 Index.

Share Buybacks

Book value, a measure of assets minus liabilities, climbed to US$83.08 a share at the end of June, from US$78.28 the prior quarter. Hancock has been reducing the share count through repurchases, as the company returned US$7.9 billion of capital to investors this year through yesterday.

Second-quarter results included a pretax gain of US$928 million from the sale of shares in ’s PICC Property & Casualty Co.

Pretax operating income at commercial property-casualty operations, led by Rob Schimek, dropped 34 per cent to US$791 million.

The combined ratio worsened to 102.1 from 98.8, meaning the business had an underwriting loss of 2.1 cents for every premium dollar after paying claims and expenses. Adjusted for catastrophes and reserve charges, that measure improved.

Catastrophe Costs

Results were hurt by a US$100 million cost because of the potential for higher-than-expected liabilities on workers’ compensation policies in Florida after unfavorable court rulings. Costs tied to catastrophes climbed 69 per cent to US$353 million. The industry was stung in the quarter by wildfires in Canada, storms in the US and earthquakes abroad.

Policy sales slipped 21 per cent to US$4.42 billion as Schimek narrowed the company’s focus. He has reduced some risks through reinsurance and opted not to renew policies in lines of business where returns were too low.

Profit at the institutional markets segment slipped 27 per cent to US$110 million. The mortgage operation, primarily comprised of United Guaranty Corp, contributed US$187 million, up 19 per cent as underwriting improved.

Hancock decided this year to partially spin off UGC, and the unit has filed for an initial public offering.

Operating profit at the retirement business led by Consumer Insurance CEO Kevin Hogan, slipped 7.8 per cent to US$741 million as investment income declined. Life insurance rose 23 per cent to US$184 million. Personal insurance more than doubled to US$179 million as underwriting improved, AIG said.

Investment Income

AIG’s operating return on equity dropped to 6.7 per cent from 9.3 per cent. Normalized for one-time items such as the worker’s compensation charge and volatility in returns from investments such as hedge funds, the figure climbed to 8.8 per cent from 6.7 per cent.

Hancock cut general operating expenses 16 per cent to US$2.59 billion.

Net investment income declined 3.7 per cent to US$3.68 billion. Returns from private equity investments fell 66 per cent to US$100 million.

Hedge fund contributions declined 36 per cent to US$174 million as chief investment officer Doug Dachille slashes about half of the holdings and shifts funds to commercial mortgages and bonds.

Net unrealized gains from bonds available for sale widened to US$17.6 billion from US$12.1 billion three months earlier, according to the firm’s quarterly report, fueled by advances in corporate debt.

The market fluctuations aren’t counted toward earnings, but monitored by investors to gauge financial strength. — Bloomberg
Source: The Malay Mail

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