AIG Beats, Property Insurance Still Struggles

NEW YORK (TheStreet) -- American International Group (AIG) late on Thursday beat analysts' estimates for third-quarter earnings, but the company's property and casualty insurance unit continued to show underwriting losses.

AIG reported third-quarter after-tax operating income of $1.6 billion, or $1.00 a share, beating the consensus estimate of 86 cents, among analysts polled by Thomson Reuters. Earnings improved from an after-tax operating loss of $3.0 billion, or $1.58 a share, in the third quarter of 2011.

CEO Robert Benmosche said that "during the third quarter, our global property casualty operations benefited from improving pricing trends, continued implementation of strategic initiatives, and positive marks on recently acquired structured securities, while making strategic investments to increase efficiencies," and that "our domestic life and retirement operations delivered a solid quarter and also benefited from positive marks on higher yielding investments, as well as positive alternative investment returns."

Benmosche added that "mortgage Guaranty and Aircraft Leasing each posted profits, and have solidified their positions as leaders in their respective industries."

AIG's Property Casualty division continued to show an underwriting loss, with a combined ratio of 105.0 during the third quarter, improving from 105.9 a year earlier. The combined ratio is the sum of incurred losses and expenses divided by earned premiums. It measures underwriting profitability, and a combined ratio of over 100% indicates an underwriting loss.

The Property Casualty unit's third-quarter underwriting loss was $441 million, improving from $532 million in the third quarter of 2011. The unit's overall performance improved, with third-quarter pre-tax income of $949 million, compared to $551 a year earlier, as net investment income increased 20% year-over-year, to $1.2 billion.

Benmosche said that AIG had repurchased $13 billion in common shares year-to-date, as the government reduced its stake in the company. "During the quarter, we achieved the important milestone of making America whole on the $182 billion support provided to AIG during the crisis, plus a combined positive return to the American taxpayers of more than $15 billion to date."
Benmosche said "over the past week, our priorities have been to assist our customers affected by Hurricane Sandy and to safeguard our employees. It is too early to provide an estimate of the financial impact of the storm. At this time, AIG offices in lower Manhattan, including our corporate headquarters, are without power and our business continuity plans have enabled us to continue to serve our customers and operate nearly without interruption. I commend our employees in the path of the storm for their perseverance and commitment to AIG and our customers."

AIG's shares closed at $35.20 Thursday, returning 52% year-to-date. The shares trade for 10 times the consensus 2013 EPS estimate of $3.50.

The shares were down 1% in aftermarket trading, to $34.90.

AIG data by YCharts

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.