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Life Health > Life Insurance

AIG Shows Billion-Dollar Earnings Gain

By Arthur D. Postal

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Strong first quarter operating profits at American International Group (NYSE: AIG) are leading insurance analysts to say that an eventual government exit now appears to be visible.

Keefe Bruyette and Woods analyst Cliff Gallant said that AIG’s current management team has done a “tremendous job rebuilding the AIG franchise.”

Gallant added that if financial markets remain favorable, and if AIG can continue to execute operationally, “major asset sales and buybacks could occur in 2012 which could lead to material book value and EPS accretion.”

Both KBW and UBS both increased their price target on the stock in a reaction to the results.

UBS’ Andrew Kligerman increased his price target to $34 from $29 and Keefe Bruyette and Gallant raised KBW’s target from $26 to $29. But both retained their neutral rating on the stock.

Earnings grew 147 percent in the first quarter of 2012 compared to the same period in the prior year, but the gain was mostly from the property and casualty sector.

One of the key factors at the life group was that distributors who severed ties with AIG after the government was forced to take a 79.9 percent ownership stake in September 2008 are continuing to reconnect with the company.

The company said that net income attributable to AIG was $3.2 billion and after-tax operating income was $3.1 billion for the quarter ended March 31.

This compared to net income attributable to AIG of $1.3 billion and after-tax operating income of $2.1 billion for the first quarter of 2011.

In another positive development, SunAmerica Financial Group CEO Jay Wintrob said that individual variable annuity deposits totaled $1.0 billion in the 2012 first quarter, a 38 percent increase over the first quarter of 2011, due to competitive product enhancements and reinstatements during the last year at a number of key broker dealers.

He added that net flows were positive for the fifth consecutive quarter. Retail life insurance sales grew 7 percent during the first quarter of 2012 over the first quarter of 2011 “as product enhancements and efforts to re-engage independent distribution channels continued to produce positive sales results.”

But life earnings grew only from $1.2 billion in the same quarter of 2011 to $1.3 billion this year, according to an earnings report released after the market closed Thursday.

But first quarter net investment income at SunAmerica rose 22 percent to $2.89 billion, from $2.372 billion in the fourth quarter. Investment income had been declining in the second, third and fourth quarters from $2.754 billion in the first quarter of 2011.

First-quarter net investment income at Chartis advanced to $1.22 billion from $1 billion in the last three months of 2011.

Robert H. Benmosche, AIG’s president and chief executive officer, said during a conference call today that “AIG benefitted from strong organic growth during the first quarter and is “well on its way to achieving aspirational goals.”

He said “SunAmerica is benefitting from its broad portfolio of competitive products, diverse and strong distribution relationships, and continued discipline in product pricing.”

At SunAmerica life, first quarter 2012 results benefited from the reinvestment of cash during 2011 and positive equity market performance in the first quarter of 2012, according to CEO Jay Wintrob.

But, he said, partially offsetting these improvements were lower returns from hedge fund and private equity investments in the first quarter of 2012, versus a strong 2011 first quarter.

SunAmerica continued to be affected by the low interest rate environment, but group retirement products, individual variable annuities and retail mutual funds all showed significant improvements.

Individual variable annuity deposits totaled $1.0 billion in the 2012 first quarter, a 38 percent increase over the first quarter of 2011, due to competitive product enhancements and reinstatements during the last year at a number of key broker dealers.

Net flows were positive for the fifth consecutive quarter, the company said.

Retail life insurance sales grew 7 percent during the first quarter of 2012 over the first quarter of 2011 as product enhancements and efforts to re-engage independent distribution channels continued to produce positive sales results. Wintrob said.

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