AIG American International Group Inc

By Leslie Scism, Nicole Friedman and Tess Stynes 

American International Group Inc. swung to a quarterly profit but suffered a setback in its turnaround effort for its property-casualty insurance unit, while four other big insurers reported stronger-than-expected operating results for the third quarter.

Analysts at Evercore ISI dubbed Wednesday as "Insurance Super Day" with life insurers MetLife Inc., Prudential Financial Inc. and Lincoln National Corp., along with car and home insurer Allstate Corp. and AIG, reporting results after the closing bell.

MetLife, in one of its last few quarters as the U.S.'s biggest life insurer by assets, said its results were buoyed by a 6% increase in net investment income to $5.2 billion. That gain was driven by a strong performance of private-equity holdings and the sale of a real-estate joint venture interest.

Prudential, which is set to succeed MetLife as the biggest life insurer, highlighted strength in its international business, along with flows in its retirement and asset management divisions.

The improved results at both of those companies come despite a tough environment for sales of many of their interest-rate-related products.

Smaller peer Lincoln National Corp. said its operating earnings for the quarter marked a record, thanks to strong life mortality and group protection loss ratios. And car and home insurer Allstate Corp. reported higher property-liability insurance premiums but a big increase in catastrophe losses.

At AIG, results fell below the expectation of Wall Street analysts, though they did top the poor performance of the year-earlier quarter, when the company took a restructuring charge.

AIG posted operating income of $1.1 billion, or $1 a share, up from $691 million, or 52 cents a share, the year before when results fueled activism from billionaire investors Carl Icahn and John Paulson. Mr. Paulson and a deputy to Mr. Icahn were added to AIG's board in May. Analysts were expecting $1.21 a share in operating earnings.

The latest results were hurt by a charge of $404 million, or 37 cents a share, to recognize losses in a portfolio of "structured settlements" that the company has designated for sale as part of its effort to streamline and return more capital to shareholders.

AIG's setback was a $306 million strengthening of reserves for policies sold to U.S. businesses in years past. AIG, which didn't specify the years, said the strengthening related to casualty and property lines written by managing general agents.

The reserve boost drove AIG's "loss ratio" -- which reflects the percentage of each premium dollar that goes to pay claims and related expenses -- to 77.7%, up from 72.8% the year before. It comes on top of a $3.6 billion pretax strengthening that AIG took in last year's fourth quarter, as AIG sought then to get reserves in shape.

AIG highlighted that the quarter included many signals that results are improving. Several divestitures and reinsurance pacts were negotiated, mostly to better focus AIG, and cost-cutting is running ahead of plan, with expenses down 12% from the prior-year period, the company said. The percentage of each premium dollar that goes to claims shrank to 27.6% from 29.5%.

The company's "accident year loss ratio," which is a metric watched closely in AIG's turnaround because it reflects the profitability of business on a forward-looking basis, is 64.8%, improved from the 66.7% of the year-earlier period. But that was a worsening of the 62.4% in the second quarter. The prior-quarter results had drawn cheers from investors.

AIG said it remains committed to lowering the accident year loss ratio, despite what Chief Executive Peter Hancock called "volatile quarterly results."

As part of its turnaround, AIG is committed to returning at least $25 billion to shareholders through buybacks and dividends in 2016 and 2017. It said it has returned $10.8 billion to shareholders year-to-date through Nov. 2. AIG's board authorized an additional increase in repurchase authorization of $3 billion.

At MetLife, operating earnings more than doubled to $1.4 billion, or $1.28 a share, easily beating the $1.14 expected by analysts. It net results, however, included $683 million in derivative losses reflecting changes in interest rates, equity markets and foreign currencies, along with a $223 million write-down tied to Brighthouse Financial, the new name for its life-insurance operations.

Prudential's operating earnings, meanwhile, rose 7.3% to $1.91 billion, or $2.66 a share, above Street expectations for $2.49.

Lincoln Financial's operating earnings rose 53% to $ 441 million, or $1.89 a share. Revenue decreased 5.5% to $3.53 billion. Analysts expected per-share operating profit of $1.62 and revenue of $3.44 billion. Lincoln's board also approved a 16% increase in the company's quarterly dividend.

At Allstate, operating earnings fell 22% to $474 million, or $1.26 a share. Premiums written increased 2.1% to $8.31 billion. Analysts expected a per-share operating profit of $1.25 and net premiums written of $8.35 billion. Pretax net catastrophe losses increased to $481 million from $270 million a year earlier, mostly from wind and hail storms.

Write to Leslie Scism at leslie.scism@wsj.com, Nicole Friedman at nicole.friedman@wsj.com and Tess Stynes at tess.stynes@wsj.com

(END) Dow Jones Newswires

November 02, 2016 17:28 ET (21:28 GMT)

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