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AIG doubles dividend, lifts buyback as profit tops estimates

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(Bloomberg) — American International Group Inc. more than doubled its dividend and increased its share buyback by $5 billion after asset sales helped build up cash, even as results slumped at some of the main insurance operations.

Net income slipped to $1.8 billion, or $1.32 a share, from $3.07 billion, or $2.10, a year earlier, New York-based AIG said in a statement Monday. Operating profit, which excludes some investing results, was $1.39 a share, beating the $1.21 average estimate of 21 analysts surveyed by Bloomberg.

AIG has been selling non-insurance assets and returning cash to shareholders as the company focuses on strengthening units that provide property-casualty and life coverage. Peter Hancock, who became chief executive officer last year, is also seeking to cut costs to help boost margins. The company trades for less than its net-asset value, even after a 15 percent rally this year.

AIG’s results are “a huge improvement from the bad old days, but well below its potential,” David Havens, a credit analyst at Imperial Capital, said in a note. “And that’s probably the biggest issue confronting management and the board today.”

Springleaf, AerCap

AIG said Monday that it got about $410 million in the quarter through the sale of stock in consumer-finance company Springleaf Holdings Inc. Hancock in June raised about $3.7 billion in cash with the sale of most of its stake in AerCap Holdings NV.

The dividend was raised to 28 cents a share from 12.5 cents. The company restored a quarterly payout two years ago after suspending a dividend in 2008, the year the company received a U.S. bailout. AIG has been reshaping management after repaying the rescue. Hancock promoted Brian Schreiber to the chief strategy officer post to oversee acquisitions and divestitures, and added Doug Dachille to manage investments.

Book value, a measure of assets minus liabilities, fell to $79.74 from $80.16 as of March 31. Insurers including MetLife Inc. reported declines in the value of fixed-income holdings for the period as interest rates climbed.

Net unrealized gains on bonds available for sale narrowed to $12.1 billion on June 30 from $18.7 billion three months earlier, fueled by a drop in corporate debt, according to AIG’s quarterly report. The market fluctuations typically aren’t counted toward earnings, but are monitored by investors and ratings firms who gauge insurers’ financial strength.

AIG gained 5 cents to $64.20 in extended trading at 5:46 p.m in New York.

Commercial Insurance

Pretax operating income at the commercial-insurance operation led by John Doyle declined 7.7 percent from a year earlier to $1.5 billion.

Doyle’s property-casualty operation contributed $1.19 billion, down 4.3 percent from a year earlier. The combined ratio at the property-casualty segment worsened to 98.8 from 96.5, meaning the business had an underwriting profit of 1.2 cents for every premium dollar after paying claims and expenses.

P&C margins were hurt by an increase in catastrophe costs and higher-than-expected costs tied to commercial auto policies from prior years. Premium revenue dipped 3.2 percent to $5.1 billion, fueled by currency fluctuations.

At the mortgage-insurance unit, which guards lenders against borrower defaults, profit fell 25 percent to $157 million from a year earlier, when the segment had a benefit tied to reserves. Premium revenue was flat. Profit at the institutional-markets segment declined 11 percent to $151 million.

Retirement Operations

At Kevin Hogan’s consumer business, operating income declined 8.6 percent to $1.02 billion. The contribution from retirement operations increased on improved investment results, while life insurance fell because of claims costs.

Net investment income slipped to $3.83 billion from $3.88 billion a year earlier. Returns from private-equity investments rose 5.1 percent to $291 million, AIG said in a supplementary filing. The gain from hedge funds more than doubled to $272 million.

The insurer’s operating return-on-equity increased to 9.3 percent in the quarter from 9.1 percent a year earlier, AIG said in a supplemental document on its website. Hancock cut general operating expenses 3.6 percent $2.94 billion.

The insurer maintained a stake in American General Finance Corp. after agreeing in 2010 to sell the business to Fortress Investment Group LLC. The buyer subsequently rebranded the business as Springleaf.

Hancock’s company got the AerCap stake as part of AIG’s sale last year of International Lease Finance Corp. to the company for about $7.6 billion in cash and stock.