AIG Posts Loss on Charges Tied to Rescue; Shares Fall
American International Group Inc., the insurer rescued by the U.S., posted a fourth-quarter loss on charges tied to paying down its bailout debt and boosting commercial insurance reserves. The shares declined 4.8 percent in early New York trading.
The net loss of $8.87 billion, or $65.51 a share, narrowed from $61.7 billion, or a reverse-split adjusted $458.99, a year earlier when AIG posted the biggest loss in U.S. corporate history, the New York-based firm said today. The operating loss, which excludes some investment results, was $53.23 a share, missing the $3.94 average loss estimate of three analysts surveyed by Bloomberg.
Chief Executive Officer Robert Benmosche, 65, appointed in August, must increase insurance profits to repay loans in AIG’s $182.3 billion bailout. Benmosche, who has told staff that AIG was “too big,” is also divesting two of the company’s largest non-U.S. life insurance divisions to reduce the firm’s draw on a Federal Reserve credit line by $25 billion.
“It’s extremely important to see the earnings stabilize somewhat,” said Robert Haines, analyst at credit research firm CreditSights Inc. in New York.
Results included $6.7 billion in after-tax charges fueled by paying down AIG’s Federal Reserve credit line. It cost the company $1.8 billion to add to reserves in property-casualty operations as sales in the division slipped 2.2 percent.
The insurer declined $1.31 to $26.20 at 8:11 a.m. in New York. AIG has slipped about 8.2 percent this year through yesterday in New York Stock Exchange composite trading. The company plunged 97 percent in 2008, the year it almost collapsed, and 4.5 percent last year. The company executed a reverse stock split, in which investors turned in 20 shares for a new one with a higher price, after its June 30 annual shareholders meeting.
Shareholders’ equity, a measure of assets minus liabilities, fell 4 percent to $69.8 billion from $72.7 billion as of Sept. 30. AIG’s annual loss narrowed to $10.9 billion for 2009 from $99.3 billion in 2008. The insurer earned $6.2 billion in 2007.
Sales at property-casualty operations, which include coverage of commercial property, corporate boards and airplanes, fell 2.2 percent to about $6.9 billion as clients scaled back coverage amid the recession.
AIG said that it spent about $1.32 on claims and expenses for every dollar it collected in premiums, compared with $1.21 a year earlier, as the insurer added to reserves, in part to pay claims from workers’ compensation policies sold before 2003.
AIG may have been “aggressive” in pricing its workers’ compensation and professional liability policies, Sanford C. Bernstein said in a research note in November estimated that the shortfall may be $11 billion.
U.S. commercial insurance rates fell 5.6 percent in the fourth quarter when compared with the same period a year earlier, according to a survey by Washington-based Council of Insurance Agents and Brokers. Prices have declined in every quarter since 2004.
Competitors including Chubb Corp. and Liberty Mutual Group Inc. have said that AIG, in an effort to keep customers, is slashing its prices to levels that may be inadequate to cover claims. Joel Ario, the Pennsylvania insurance regulator, said he expects to complete a “broad-scale examination” into AIG during the first half of this year, including whether the insurer is underpricing.
Life insurance premiums and other considerations from the U.S. operation dropped 24 percent from a year earlier to $1.28 billion. Outside the U.S., the figure slipped 2.1 percent to $6.2 billion.
The insurer’s consumer lender, American General Finance Corp. posted an operating loss of $309 million in the quarter, compared with a $248 million loss a year earlier. The Evansville, Indiana-based lender has shut offices, cut jobs and sold receivables to ease liquidity pressure.
AIG’s plane-leasing business, International Lease Finance Corp., posted a $344 million operating profit, a gain of 66 percent from a year earlier after the unit expanded its fleet and borrowing costs fell. ILFC and American General have been downgraded by rating firms and lost access to their usual funding sources.
The insurer is skipping, for the third straight quarter, a conference call for analysts and investors that accompanied results in the past. Benmosche’s predecessor Edward Liddy opted against a conference call in August, at the end of his tenure, after holding them in prior periods. Former CEOs Robert Willumstad, Martin Sullivan and Maurice “Hank” Greenberg held question-and-answer sessions with analysts.
Since its September 2008 rescue, AIG has struck deals to raise more than $12 billion by selling businesses including an asset manager, equipment guarantor and U.S. auto insurer.
The company gave stakes in the two life divisions, American Life Insurance Co. and American International Assurance Co., to the Fed in December. MetLife Inc. has said it is in talks to buy Alico, which operates in more than 50 countries outside the U.S. The insurers have discussed a price of about $15 billion, according to people with knowledge of the situation.
AIG, once the world’s largest insurer by assets, needed a bailout after losses from a derivatives trading unit that guaranteed mortgage-linked assets sapped the parent company of cash. The rescue includes a $60 billion Federal Reserve credit line, a Treasury Department investment of as much as $69.8 billion and up to $52.5 billion to buy mortgage-linked assets owned or backed by the company.