Updated from 10:36 a.m. EST
Two insurers painted very different pictures of the fourth quarter Thursday with
American International Group
posting a 3.8% gain in profits due to rising premiums while
said earnings fell 83% amid large charges related to
Still, analysts said the outlook for both companies, and indeed the industry, looks bright.
AIG posted fourth-quarter net income of $1.87 billion, or 70 cents a share, up from $1.80 billion, or 68 cents a share in the same quarter last year.
The firm's "core income," which included a 3-cent charge related to Enron surety losses and a provision for Northridge earthquake claims, rose to 75 cents per share, compared with 68 cents a share last year. Still, analysts had called for a 78-cent profit, sending the stock down 1% to $69.97 Thursday.
Revenues at the company rose 8.3% to $16.69 billion in the fourth quarter as AIG's worldwide general insurance net premiums written grew 15.4% to $5.20 billion.
"It was a very solid quarter for AIG and should alleviate some of the concerns people have about potential accounting issues or disclosure from large, more sophisticated companies," said Mark Lane, an analyst at William Blair.
Shares of AIG have fallen almost 12% since the start of the year on concerns that it might reveal some accounting irregularity, he said, adding that the selloff has been overdone.
News from fellow insurer Chubb was much less encouraging. The firm said net income fell to $28.7 million, or 16 cents a share, for the quarter from $168.4 million, or 95 cents a share, in the same period last year.
Operating income in the quarter was $36.5 million, or 21 cents per share, compared with $165.9 million, or 93 cents, in the corresponding quarter of 2000. These results reflect an after-tax charge of $143 million, or 83 cents a share, from surety bond losses related to Enron.
"The very strong commercial business was offset by problems in the personal and some specialty lines," noted Susan Spivak at ABN Amro.
Lane said AIG started "cleaning up" its property and casualty operations much earlier than Chubb after the terrorist attacks, "refining their focus on businesses that they know well and getting out of businesses that didn't make strategic sense."
"Chubb had a lot more cleanup to do," he said.
In the Ocean
AIG's size and diversity also allowed the company to be more nimble than Chubb in the wake of the attacks, offering the kinds of coverage that were needed and offering them at a higher price, according to Spivak. In addition, AIG's size enabled it to more easily absorb charges from Enron, analysts said.
"(AIG's) earnings missed the consensus but the core business came in a bit ahead and with rising premiums and stable margins. This is a sign of a significantly improving market," noted Lane.
Chubb Chairman and CEO Dean R. O'Hare shared this upbeat view, telling investors on a conference call that he is optimistic about price increases this year. "The outlook is great, rates are sky high," he said.
Rate increases in Chubb's commercial lines jumped 19% in the fourth and 25% for the month of January, which "bodes well for Chubb's future earnings and the industry," Spivak said. Chubb rose 3% to $68.53 Thursday.
said on Thursday it will take a $250 million pretax charge in the fourth quarter to settle a class action lawsuit and possible fines from regulators, stemming from charges that it sold small life insurance policies to blacks at higher prices than whites prior to 1973. MetLife fell 1% to $28.64.