AIG's Profit Rises, Despite Lower Premium Volumes
August 02 2016 - 5:10PM
Dow Jones News
American International Group Inc. posted a 6.3% increase in net
income for the second quarter as it deliberately shrank the amount
of insurance sold, part of a strategy to bolster returns and
satisfy activist investors.
The global insurance conglomerate also cut costs aggressively to
bring down expense ratios in its property-casualty insurance
operations in the U.S. and overseas, delivering on another promise
from a Jan. 26 strategy update, back when those investors were
clamoring for a three-way split of the company.
Still, the company's operating income, which is closely watched
by analysts, fell 41%. It was hurt by a sharply higher level of
claims for catastrophes, including the Fort McMurray fires in
Canada, while interest rates that were lower than in the
year-earlier period prompted upward adjustments of some claims
reserves.
The per-share operating results, which exclude realized capital
gains and losses and some other items considered nonrecurring, beat
the consensus expectation of analysts, though they aren't expected
to dwell on the upside surprise in the earnings call Wednesday.
Instead, they will be trying to gain insight about additional moves
by AIG to improve its sluggish stock-market performance.
The results are the first reported since AIG in May added to its
board a representative of billionaire activist Carl Icahn and
hedge-fund manager John Paulson.
In particular, analysts will be seeking more detail on AIG's
promise to return at least $25 billion in share buybacks and
dividends through 2017. It is an ambitious goal that is expected to
be fulfilled in part from divestitures, including the sale of a
stake in AIG's United Guaranty mortgage-insurance unit, possibly
through a public offering later this year.
AIG is also open to an outright sale of the unit, people
familiar with the matter said.
AIG said it returned $3.2 billion of capital to stockholders in
the second quarter, mostly through share buybacks, and had bought
$698 million of common stock since the quarter ended, through Aug.
2. That puts its year-to-date return of capital at $7.9
billion.
The board said in a separate release that it would add $3
billion to its stock buyback plan.
AIG reported a 21% decline in a closely watched measure of
premium volume in its core business of selling property and
casualty insurance to business clients. "Net premiums written" fell
to $4.42 billion, from $5.58 billion. The decrease primarily
occurred as AIG opted not to renew policies in certain poorly
performing product lines, and as the company declined to lower
prices for potential buyers even as some rivals have been hotly
competing for business.
AIG posted net income of $1.91 billion, or $1.68 a share, up
from $1.8 billion, or $1.32 a share, in the year-earlier quarter.
The most-recent results included $928 million of gains from the
sale of shares in PICC Property & Casualty Co., in China.
Operating income clocked in at $1.11 billion, or 98 cents a
share, down from $1.89 billion, or $1.39 a share, in the
year-earlier period. Analysts were expecting 93 cents a share.
AIG Chief Executive Peter Hancock said in the earnings release
that the results "show strong improvement towards all the goals the
board and I announced in January," adding that their confidence "is
high" in hitting financial targets set for 2017.
The concept behind the three-way split advocated by Messrs.
Icahn and Paulson before they joined the board is that AIG could
escape its current designation as a "systemically important"
institution by federal regulators, subject to to-be-determined
capital and other rules.
Mr. Hancock maintains a split isn't in shareholders' best
interests. He promised in the January update to reorganize AIG's
property-casualty and life-insurance operations into nine units,
more sharply cut costs, return more capital to shareholders and
potentially sell any business that underperforms.
--Joann S. Lublin contributed to this article.
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
August 02, 2016 16:55 ET (20:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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