WASHINGTON — American International Group shares jumped Wednesday in response to higher than expected second quarter earnings as the company reshapes itself under intense pressure from institutional investors.
“We’re in the second quarter of an eight quarter journey to return the company to a level of profitability, which we feel is compelling,” Peter Hancock, president and CEO, said as AIG ended its conference call with investors. “And we want to do so while investing in talent and technology for the long term, so that we remain relevant to our clients as the world around us changes rapidly.”
He called the results “measured progress.”
“I’m pleased with the results,” Hancock said, adding that “we still have a long way to go and I think we got to stay very, very focused on execution.”
The company reported a 6% increase in its life insurance operations, with growth led by fixed annuities, retail mutual funds and group retirement products.
Fixed Annuity sales rose significantly from the low levels in the prior-year quarter although sales and net flows declined sequentially reflecting lower interest rates during the quarter as well as a more competitive market environment.
Variable annuity sales declined. Kevin Hogan, executive vice president and CEO of AIG’s consumer unit, said variable annuity sales for life insurers in general “are being pressured due to volatile equity markets and uncertainty about the Department of Labor fiduciary rule.”
Hogan said AIG is “confident” it will be prepared in time for implementation of the DOL rule. Hogan said is discussing with its distributors partners “as they determine their chosen paths for implementation, which we will in turn support.”
He said the combination of its leading market positions across annuity product lines and its multichannel distribution network positions AIG “well to respond to various market conditions and regulatory landscapes.”
Improvements in PC Business Drive Higher Earnings
A key to higher earnings was through reducing risk in the property and casualty portfolio as well as an 11% cut in operating expenses compared to last year.
Shares rose to $58.02, up $3.88 or 7.17% near the market close Wednesday following the release of earnings after the market closed Tuesday. The Tuesday close was $54.14.
AIG said that its second quarter earnings were $1.1 billion, or $0.98 per share, beating the consensus estimate of $0.93 by five cents. However, part of that gain stemmed from the reduced risk in its PC business. Last year’s comparison was $1.9 billion, or $1.39 a share.