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Portfolio > Economy & Markets > Fixed Income

AIG Earnings on the Rise

By Arthur D. Postal

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American International Group earned profits in both its fourth quarter and for the entire year, and showed strong growth in its group retirement products and individual variable annuities.

However, most of the profit growth for the entire company was due to a tax-related accounting gain, and its key SunAmerica life operating company showed an 10.7 percent decline in pre-tax operating income in the fourth quarter.

At SunAmerica, premium and policy fee income was $1.32 billion in the fourth quarter, down 0.9 percent from $1.332 billion in the fourth quarter of 2010.

Net investment income in the fourth quarter of 2011 was $2.372 billion, down 14.6 percent from $2.777 in 2010.

Pre-tax operating income was $931 million, down 10.7 percent from $1.043 billion in 2010.

Overall, AIG reported a $19.8 billion profit in the fourth quarter of last year, nearly all of it due to a tax-related accounting gain. Specifically, the deferred tax asset valuation allowance for the quarter was $17.7 billion, reducing actual net profit to $1.6 billion.

In the same period a year earlier, AIG had an operating loss $2.2 billion.

For the full year, AIG earned $17.8 billion for 2011, its second straight year of operating profits.

Specifically, after-tax operating income in the 2011 fourth quarter was $1.6 billion, or $0.82 per diluted share compared to a loss of $2.2 billion, or $15.99 per diluted share in the corresponding prior year quarter.

After-tax operating income for the full year of 2011 was $1.8 billion, or $1.02 per diluted share compared to a loss of $898 million, or $6.57 per diluted share in 2010.

In a statement, AIG CEO Robert Benmosche said that, was something that AIG’s skeptics would have thought “inconceivable” a couple of years ago.

He said that AIG anticipates that, “we’ll continue to be competitive in all areas of our core insurance businesses.

“We’re seeing markets hardening at Chartis,” and “at SunAmerica, we have taken a leadership position to meet the critical needs of retirees.”

Keefe Bruyette and Woods analyst Chris Gallant said premiums, deposits, and other considerations increased to $5.7 billion from $4.9 billion at 4Q10 at SunAmerica, due primarily to growth in group retirement products and individual variable annuities.

He said group retirement products were up 27 percent, due to an increase in individual rollover deposits, although the increase is expected to slow in future periods due to the low interest rate environment.

Gallant said that individual variable annuity deposits increased 24 percent compared to the fourth quarter of 2010, primarily due to product enhancements, increased wholesaler productivity, and reinstatements at several key broker dealers during 2011.

Fixed annuity deposits increased 2 percent as certain bank distributors agreed to a lower commission in exchange for a higher crediting rate.

But, Gallant said, fixed annuity deposits declined sequentially from 3Q11, which has continued into the first quarter of 2012 as “the company maintains discipline in the low interest rate environment.”

Gallant said SunAmerica investment income declined 14.6 percent from the fourth quarter of 2010, primarily due to a $347 million decline in income from hedge fund and private equity investments, partially offset by an increase in interest and dividend income from the reinvestment of cash in the first nine months of 2011.

In general, Benmosche said that AIG has completed “much of the work necessary to stabilize and de-risk our businesses, among so many other critical accomplishments.”

In 2011, Benmosche said, “we began to prosper once again.”

He said “We have a high degree of confidence in our future earnings prospects, which is a critical element in our assessment supporting the release of the deferred tax asset valuation allowance.”

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