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AIG posts $4 billion loss in fourth quarter

By Warren S. Hersch

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American International Group, Inc. reported today a net loss in fourth quarter earnings, but the insurer closed out 2012 with a net profit for the year.

AIG, New York (NYSE: AIG), discloses in its fourth quarter financial results, ended December 31, a net loss of $4 billion, or $2.68 per diluted share. This compares with net income of $21.5 billion, or $11.31 per diluted share, in the prior year quarter.

AIG’s full-year 2012 net income was $3.4 billion, or $2.04 per diluted share, compared with $20.6 billion, or $11.01 per diluted share, for the full year of 2011.

After-tax operating income in the 2012 fourth quarter was $290 million, or $0.20 per diluted share, compared with $1.5 billion, or $0.77 per diluted share, in the year-ago period. After-tax operating income for the full year of 2012 was $6.6 billion, or $3.93 per diluted share, compared with $2.1 billion, or $1.16 per diluted share, in 2011.

In a conference call to discuss the fourth quarter and full-year results, AIG Chief Financial Officer David Herzog said that efforts are underway to improve the company’s operating results.

“We’ve been very clear about our intention to streamline our balance sheet and [we] intend to execute on that plan in a very disciplined manner,” said Herzog. “We believe that we have made substantial progress towards our liability management goals in 2013. We continue to optimize our capital structure across the enterprise on an ongoing basis.”

Peter Hancock, CEO of AIG Property Casualty, echoed Herzog.

“The fourth quarter marked continued progress towards achieving our goals, increasing risk-adjusted profitability and implementing our main strategic initiatives,” he said.

Fourth quarter and full year 2012 results included pre-tax catastrophe losses from Storm Sandy of $2.0 billion ($1.3 billion after-tax). Net income for the fourth quarter and full year of 2012 included a $4.4 billion net loss on sale from discontinued operations associated with the agreement to sell International Lease Finance Corporation (ILFC), which reduced book value per share by $2.97 per share.

AIG shareholders’ equity totaled $98.0 billion at December 31, 2012.

During the fourth quarter of 2012, the U.S. Department of the Treasury (Treasury) completed a registered public offering of its remaining shares of AIG Common Stock for proceeds of approximately $7.6 billion, marking the full repayment of America’s financial support of AIG.

Distributions from insurance operations totaled $1.4 billion in the fourth quarter of 2012, and $5.3 billion for the full year of 2012, in each case excluding a capital contribution to AIG Property Casualty of $1.0 billion following Storm Sandy.

AIG Parent liquidity sources amounted to $16.1 billion at December 31, 2012, up from $11.6 billion at September 30, 2012, reflecting the sale of AIA shares.              

AIG Life and Retirement reported operating income of $1.1 billion in the fourth quarter of 2012, compared to $912 million in the fourth quarter of 2011, as results were positively impacted by efforts to actively manage spread income. Results benefited from higher net investment income, lower interest credited, and lower reserve charges for death claims compared to the prior year quarter. “Life and Retirement again continues to do well,” said AIG President and CEO Robert Benmosche. “Our variable annuity sales, which are very well designed, continue to do grow a time when many of our competitors feel the need to contract because of more aggressive features on their products versus what we’re doing now.”

“Our [Life and Retirement] results continue to benefit from action on both the asset and liability side of the balance sheet to manage spread income in the current interest rate environment, from growth in asset under management and related fee income growth, aided by strong fixed income and equity markets and from continued expense management” added AIG Life and Retirement CEO Jay Wintrob.

Premiums, deposits, and other considerations totaled $5.2 billion in the fourth quarter of 2012, compared to $5.9 billion in the fourth quarter of 2011, principally due to a decline in fixed annuity deposits, as AIG Life and Retirement continued to maintain pricing discipline in the current low interest rate environment.

Individual variable annuities showed significant growth over the fourth quarter of 2011, benefiting from the expansion of the sales organization, attractive product design, as well as a more favorable competitive environment. Variable annuity deposits totaled $1.2 billion in the fourth quarter of 2012, a 50 percent increase over the fourth quarter of 2011.

Premiums, deposits, and other considerations in the fourth quarter of 2012 increased by $430 million compared to the third quarter of 2012, principally due to higher variable annuity and group retirement deposits.

Assets under management were $290.4 billion at the end of the fourth quarter of 2012, compared to $256.9 billion at the end of the fourth quarter of 2011, reflecting growth in variable annuities, strong fixed income and equity markets, and the novation of stable value wrap business from Global Capital Markets.

AIG Life and Retirement provided $440 million of distributions to AIG Parent in the fourth quarter of 2012 and $2.9 billion for the full year 2012.

Subsequent to the earnings announcement, brokerage firm Sterne Agee, Birmingham, Ala., downgrading AIG to “neutral” from “buy” as the company believes that AIG’s shares are “fairly valued” at current levels.

“The timing and size of expense saves in 2014 and beyond remain cloudy,” Sterne Agee indicates in a press statement. “We see better relative value for new money in [Met Life and Prudential Financial]. We continue to like the long-term turnaround story at AIG, but believe the shares are fairly valued at current levels and see little room to move our price target without stretching beyond 2014.”

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