AIG Profits on Investment Results - Analyst Blog

American International Group Inc. (AIG) reported first-quarter earnings of $809 million or $1.21 per share, significantly ahead of the Zacks Consensus Estimate of 48 cents. The company incurred a loss of $2.1 billion or $22.90 per share in the year-ago period.

On a GAAP basis, the company reported a net income of $1.5 billion or $2.16 per share, compared with a net loss of $4.4 billion or $39.67 per share in the year-ago quarter.

AIG reported robust results in its insurance operations. The solid results were driven by significant improvements in investment income. However, it is notable that premiums, deposits, and other considerations were down 6.5% year-over-year, primarily due to a fall in individual fixed annuities and lower life insurance sales. The company also said that the surrender activity has somewhat stabilized.

The company’s continuing insurance operations reported an adjusted operating income (before net realized capital gains) of $2.2 billion, significantly ahead of $908 million reported in the year-ago quarter.

While catastrophe losses somewhat muted the result of its General Insurance business, the division managed to earn $879 million, compared with $710 million in the year-ago quarter.

Earnings at Domestic Life & Retirement Services operations also increased to $1.1 billion, compared with a loss of $160 million in the year-ago quarter. However, Foreign Life Insurance & Retirement Services operations reported a drop in income to $220 million from $358 million.

Losses at its Financial Services business decreased to $474 million from a loss of $1.1 billion in the year-ago quarter. The company also reported a valuation gain on its interest in Maiden Lane III of $751 million, compared with a valuation loss on Maiden Lane III of approximately $1.9 billion in the prior-year period. The company also reported a $3.6 billion increase in total equity from year-end 2009 to $101.7 billion as of Mar 31, 2010.

AIA and ALICO Deals

AIG, which received federal support worth $182.5 billion that helped prevent its collapse in September 2008, has been trying for the past several quarters to sell assets and streamline its operations in an effort to repay the bailout money.

AIG also struck two deals earlier in March. It will sell its American Life Insurance Co. (ALICO) unit for about $15.5 billion to MetLife Inc. (MET) and its Asian life-insurance unit, American International Assurance (AIA), to the U.K.’s Prudential Plc. (PUK) for about $35.5 billion. Both the transactions are expected to close by the end of 2010.

The results of AIA and ALICO are reported as discontinued operations as a result of the sale announcements. AIA and ALICO reported $658 million and $543 million, respectively, of pre-tax income in 2010, compared with pre-tax income of $390 million and $175 million, respectively, in the prior-year quarter.

AIG’s aircraft leasing unit, International Lease Finance Corporation (ILFC), announced in April that it has agreed to sell 53 aircraft to Macquarie Aerospace Limited, an indirect subsidiary of Macquarie Group Limited, for $1.99 billion.

However, the selling price is well below the book value of the aircraft portfolio of $2.3 billion as of Apr 13, 2010. The deal is expected to be completed by the end of 2010.

ILFC

AIG had been exploring strategic restructuring opportunities for the ILFC. This unit has been facing challenges with respect to raising capital and in February its founder Steven Udvar-Hazy left the unit amid funding concerns.

The company said that the hunt for a permanent CEO continues. ILFC generated around $4.0 billion of liquidity in the first four months of 2010. This includes $1.3 billion from two secured term loans and $2.75 billion in senior unsecured debt.

AIG's strategic efforts in restoring its multi-line insurance market presence through its insurance subsidiaries bodes well. Additionally, the company is progressing well with its initiatives to unwind the AIG Financial Products Corp.

Reflecting positive sentiments about the company’s earnings, the shares of AIG increased over 2% in today’s pre-market session on the New York Stock Exchange.

Read the full analyst report on "AIG"
Read the full analyst report on "MET"
Read the full analyst report on "PUK"
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