American International's CEO Discusses Q4 2011 Results - Earnings Call Transcript

American International Group ( AIG)

Q4 2011 Earnings Call

February 24, 2012 08:00 am ET

Executives

Elizabeth Werner – Vice President, Head of Investor Relations

Robert H. Benmosche – President and Chief Executive Officer

David L. Herzog – Executive Vice President and Chief Financial Officer

Peter D. Hancock – Chief Executive Officer, Chartis

Jay S. Wintrob – President and Chief Executive Officer, Domestic Life and Retirement Services

Brian T. Schreiber – Treasurer, Executive Vice President, Treasury and Capital Markets

John Q. Doyle – Chief Executive Officer, Global Commercial Business, Chartis

Analysts

Joshua Shanker – Deutsche Bank Securities

Michael Nannizzi – Goldman Sachs

Edward Spehar – Bank of America/Merrill Lynch

Andrew Kligerman – UBS

Daniel Johnson – Citadel Investments

Josh Stirling – Sanford Bernstein

Gregory Locraft – Morgan Stanley

Presentation

Operator

Please standby, we’re about to begin. Good day and welcome to the American International Group’s Fourth Quarter Financial Results Conference Call. Today’s call is being recorded.

At this time, I’d like to turn the conference over to Ms. Liz Werner, Head of Investor Relations. Please go ahead, ma’am.

Elizabeth Werner

Thank you, and good morning, everyone. Before we get started, I would like to remind you that today’s presentation may contain forward-looking statements, which are based on management’s current expectations and are subject to uncertainty and changes in circumstances.

Any forward-looking statements are not guarantees of future performance or events. Actual performance and events may differ, possibly materially from such forward-looking statements. Factors that could cause this include factors described in our 2011 10-K under Management’s Discussion and Analysis and under Risk Factors.

AIG is not under any obligation and expressly disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Today’s presentation may contain non-GAAP financial measures. The reconciliations of such measures to the most comparable GAAP figures are included in our financial supplement, which is available on AIG’s website.

Thank you. And at this time I’d like to turn it over to our CEO, Bob Benmosche.

Robert H. Benmosche

Thanks, Liz, and good morning everybody. For those of you who were following the presentation online go to page 3 if you would. And we’re going to talk a little bit about 2011 and think about where you were a year ago. For us here, a year ago is probably a decade ago, but it was actually only 12 months.

When we started the year off we had, the whole recapitalization of AIG with the Federal Reserve and the U.S. Treasury. And many of you said, I don’t think they can make it. This just doesn’t seem right. And by the way, we were three years early for what it is we were required to do at that point in time. But in fact, we closed at January of 2011. We had some divestitures to continue to reduce the level of debt in our SPV for AIA and ALICO. And you saw, we sold Star and Edison, a tough sale but we got it done.

Nan Shan in Taiwan, a tough sale, we got it done, as well as selling off the remaining MetLife securities so to bring the SPV down to the level we are today, which is well below the starting point of $26 billion.

We had to strengthen our liquidity during the year, continue to get access to debt markets and other facilities including banks. As you saw, we negotiated our revolving credit facility for $4.5 billion. We did our continued capital note and even ILFC was able to get out there and show its strength in the marketplace to deal with its credit needs.

But one of the conditions of closing if you recall was we had to raise equity capital. That was the condition of closing that we could access the market and we saw in May, we were able to sell a 100 million shares of AIG’s stock alongside the Treasury’s 200 million shares of stock.

That demonstrated our ability to access the capital in markets and in fact we were able to then extinguish the Series G which was bridged to us until we actually made this accomplishment. And still in the second half, we finished the first half and as we started the second half we told all of you that we’re going from saving AIG to building AIG; that our crisis was over.

And so as we focused in the second half of the year some of the things we did that weren’t anticipated until 2012, latter part of 2012 we did our senior debt hybrid exchange.

We also repurchased and have the authorization to repurchase AIG shares for $1 billion. It was just on at the end of the year. So, that shows our beginning to do our capital management as we talked, we're going to be able to do. But, when we think about capital management and where we are one of the things we anticipate is we will be regulated by the Federal Reserve Bank of New York, is our assumption.

And therefore we're doing everything we can to make sure we do, to put in the disciplines and be ready for them when they arrive. One of the things they do require is stress testing. And so, we made our best guess as to how you run the stress test. We don't have all of the information. They haven’t given us direction of what to do. But in attempting to understand what they announced recently we've run a stress test of AIG assuming we've got most of the major pieces correct.

We wanted to understand where our Tier 1 capital was and see if that’s a binding constraint on capital management. What we found is, okay, you have to have 5% minimum and maybe a point and a half on top of that to be [sefi]. We came out in the 8% range of Tier 1 capital, which means we got it right in terms of our interpretation of the rules and we got some other things right in terms of how we attempted to execute it. We could have as much as $10 billion of extra Tier 1 capital in this company. And we said we’re resolving for capital early on because we want to make sure that people understand we are financially strong.

That doesn't mean this $10 billion that we're going to put to work right away; it just says that Tier 1 capital looks like it may not be a bided constraint. What is a bided constraint is the operations of this company. Our ability to generate cash and as you can see, in 2011 we generated almost $3 billion of dividends out of the insurance companies, almost $1 billion in the fourth quarter alone.

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