American International Group president and CEO Robert Benmosche said he will focus on improving the company’s balance sheet and rewarding shareholders after the company reported strong earnings, raised its dividend, and increased stock buybacks.
A contributing analyst to Seeking Alpha said that AIG’s life and retirement “delivered fantastic results.”
The analyst said that AIG has refocused on this business, and, “in an era of rising rates, now is the perfect time to get into life insurance.”
The analyst said that, with rising rates, “the present value of future claims declines, and higher rates will also increase investment income.”
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Benmosche used the occasion of an appearance on CNBC last night to say that the U.S. financial system is “safer than we’ve ever imagined,” and praised retiring Federal Reserve Board chairman Ben Bernanke for doing “an outstanding job of taking us through this crisis, and if you look at this trust test that banks are dealing with, the de-leveraging that’s happened.”
The company took a $265 million severance charge against fourth quarter earnings as the cost of cutting 3 percent of its workforce as part of a consolidation and reducing the layers of management. Most of the cuts will be in property and casualty operations.
Excluding that, AIG earned $1.15 as compared to analysts’ consensus estimate of 96 cents, and revenue of $4.62 billion vs. projected revenues of $4.56 billion. Year over year comparisons were also strong, with full-year after-tax operating income per share of $4.56, up from $3.93 last year. However, analysts noted that Hurricane Sandy impacted the prior year’s results.
Regarding life operations, the Seeking Alpha analyst said that while insurers who afford annuity and life products “were slammed” from 2008-2012, “we are at an inflection point that AIG is wisely taking advantage of.”
The analyst said, reflecting its push into the business, premiums and deposits increased 54 percent to $8.04 billion. The analyst also said that a strong investment environment also helped increase investment income 6 percent to $2.87 billion.
The analyst said that, as rates rise, base investment yield will increase from the current 5.29 percent. Total pre-tax income was up 29 percent to $1.4 billion. The analyst said that assets under management also increased 10 percent to $318 billion, which will power strong investment income next year.
“Life is a major growth center for AIG, and its performance continues to be exceptional,” the analyst said.
The analyst also said that, with $100.5 billion in equity and “excellent liquidity” of $17.6 billion (including cash and short term investments of $13.1 billion), “AIG has the financial capacity to keep growing its business,” adding that “this financial flexibility is why AIG is able to grow its net premium written and life business.”
The analyst said that while underwriting is still lagging, AIG reported a solid quarter and “is setting the stage for significant growth in 2014.”
The analyst said the results move the financial crisis that so affected AIG and the industry “further into the rear view mirror.” In lauding Bernanke, Benmosche said he deserved recognition by CNBC as one of the 25 most influential business people over the last 25 years.
“I think Ben Bernanke stood up, and what was most important is, we needed somebody to make decisions in ’08, however popular or unpopular, and make sure that we continued to stay focused on keeping this economy from stalling,” Benmosche said.
He called Bernanke the “unsung hero” of the period.
“I will tell you that unsung hero – why did he do this, why did he do that – but the fact is that the financial system is as strong as it is today, and is as vibrant as it is today, I think Ben Bernanke deserves an enormous amount of credit for just quietly taking the abuse and leading us to where we are today,” Benmosche said.
As to AIG, Benmosche said he doesn’t think the firm “poses any threat to the financial system.”
He said that the public negative sentiment about AIG “is down dramatically to levels lower than we’ve seen.
And the positive is starting to move up, because people realize that AIG paid back America plus a profit, for about $205 billion.”
Benmosche said that, “Many people thought AIG was finished.
“So we lived up to our promises to pay back America,” he said. He also said that AIG employs 30,000-plus people in America. “These are jobs, and all the jobs we have here at AIG, we create many more thousands of jobs for people who do business with AIG.”
As for acquisitions, Benmosche said that, “if we could find a good business for the right price, a good economic transaction for AIG, we’ll use that money to buy a company. That is something that will allow us to grow a little bit more rapidly in some of the countries we’re doing business in.”
But other than that, we will just focus on good credit ratings, and then our shareholders.”