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Indexed annuity sales drive AIG to record quarter

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Sales of indexed annuity products drove American International Group’s Retirement Income Solutions Group to another record quarter, Jay Wintrob, CEO and president of AIG Life & Retirement at American International Group, Inc., said today during AIG’s earnings conference call.

A key driver of the increase was the fact that nearly half of AIG index annuity sales in the second quarter included guaranteed lifetime income riders, he said.

The performance of AIG’s life unit prompted CEO Robert Benmosche to say during the conference call today that, “Life and Retirement continues its excellent run, as we’re becoming a stronger and stronger competitor in that space.”

Wintrob and Benmosche’s comments during the earnings call came as the company prepares for Peter Hancock, currently head of AIG’s property and casualty operations, to also assume the role of CEO from Benmosche effective Sept. 1. Hancock opened the conference call by saying, “There will be no abrupt change in strategy.”

The changing of the guard occurred as AIG reported a strong quarter that beat estimates. It reported that operating earnings, which do not include realized capital gains and losses from its investment portfolio and other items, increased 11 percent to $1.83 billion, or $1.25 cents a share, from $1.7 billion, or $1.12 a share.

The report marked another step away from the crisis mode the former insurance industry behemoth endured as it and the federal government dealt with an ill-advised move the company made away from its core insurance business with a huge investment in credit default swaps that sent into the hands of the taxpayer from 2008 until 2012.

Hancock said he will retain control of the property and casualty insurance business for the time being, and “committed” himself to “remaining very transparent with our shareholders as we fine tune and refine our strategy going forward.”

He added that, “I remain very committed to focusing on value versus simply bulking up the volume of the company.”

In opening the conference call with analysts, Benmosche noted that this “will be my last call. It’s been a five-year period of lot of excitement and this quarter reflects a lot of hard work on behalf of all of the people of AIG,” Benmosche said. He added that they started off with a daunting task of stabilizing the company, “then paying back America and we’ve done that with a profit.”

As for the life unit, an analyst said that premiums and deposits jumped 9 percent over year ago for the same quarter to $7.36 billion.

As a consequence of higher deposits, assets under management jumped 13 percent to $332.8 billion. The analyst said net investment income fell 3 percent to $2.56 billion, but this was mainly driven by lower investment returns from alternative investments, “which should be transitory.”

The analyst said that base portfolio yield was 5.17 percent compared to 5.35 percent a year ago.

“AIG has been aggressively investing in its life business to grow premiums and assets, and we are seeing solid growth as a result,” the analyst said. “This strategy makes tons of financial sense.”

Wintrob said the Life and Retirement unit of the life business, which includes individual variable annuities and fixed index annuities, generated nearly $2.6 billion of premiums and deposits. This was principally driven by index annuity sales, which were $305 million in the quarter, up from $55 million in the prior-year period. Wintrob said variable annuity sales were up 4 percent or $90 million in the quarter over the same time period last year.

Both lines benefited from product enhancements, expanded distribution, and continued strong demand for guaranteed lifetime income benefits, Wintrob said. Fixed annuity sales reached nearly $1.1 billion in the quarter, tripling from the year-ago period, he said.

“Sales remain steady despite the low interest rate environment, as fixed annuities continue to be very competitive, relative to bank CDs and money market alternatives,” Wintrob said.

Wintrob cautioned that rising interest rates and strong equity market conditions in the second half of 2013 resulted in record sales levels and growth rates. Without similar market conditions in the second half of this year, “we would expect lower sales growth rates in key product lines versus the prior year,” he cautioned.

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