AIG Beats Expectations

American International Group Inc. has capped months of headlines about accounting woes by announcing a 20% increase in first-quarter earnings.[@@]

AIG, New York, has reported $3.7 billion in net income for the latest quarter on $27 billion in revenue, compared with $2.6 billion in net income on $23 billion in restated revenue for the first quarter of 2004.

AIG, the world’s largest insurance company, is under state and federal investigation over accounting issues. The company had delayed first-quarter reporting because of an internal review that resulted in a restatement of financial results for the past 5 years.

Andrew Kligerman, the lead life sector analyst at UBS Investment Research, New York, says AIG’s actual first-quarter earnings beat his and consensus expectations by 3 cents per share.

Although operating income at the domestic life insurance and retirement services unit was flat year to year, “foreign LI&RS operating income increased 28% year over year, driven by strong growth results across businesses and possibly, unusually high equity gains,” Kligerman writes in a note about AIG’s earnings.

But Kligerman expressed concern that premiums from the foreign life segment increased by only 10%, while investment income increased by 30%. “We note that AIG backs its Asia life business with a proportion of private equity investments given the limited availability of suitable long-term fixed-income investments in these markets,” Kligerman writes.

AIG President Martin Sullivan says asset-management operating income increased by 29% in the first quarter as a result of the company’s strong global product portfolio.

Kligerman attributed the rise to a 15% year-over-year increase in combined domestic and foreign guaranteed investment contract operating earnings, to $257 million, up from $223 million for the first quarter of 2004, and a 65% year-over-year increase in institutional asset management operating earnings, to $84 million, from $51 million.

Property-casualty operations posted a 93.4% combined ratio. “But premium growth was weaker than expected due to softening pricing and in our view, regulatory issues,” Kligerman writes.