AIG: Benmosche Transformation Winner

NEW YORK ( TheStreet) -- American International Group ( AIG) was the financial stock winner on Friday, with shares rising 6% to close at $44.52.

Investors cheered strong first-quarter results that AIG reported after Thursday's market close, which included a return to profitability for the company's property and casualty insurance unit.

Investors were looking for solid operating improvement in the first quarter, after AIG CEO Robert Benmosche successfully led the company out of its epic U.S. government bailout during the fourth quarter. The U.S. Treasury said in December after selling its remaining stake in AIG shares that U.S. taxpayers ended up with a $22 billion profit from the AIG bailout.

AIG reported first-quarter operating after-tax income of $1.982 billion, or $1.34 a share, compared to $290 million, or 20 cents a share, in the fourth quarter, and $3.046 billion, or $1.62 a share, in the first quarter of 2012. The fourth-quarter results were lowered by $$1.3 billion in after-tax losses from Superstorm Sandy, while the first quarter 2012 results included $3.3 billion in pretax gains on the sale of several investments.

The first-quarter after-tax operating earnings soundly beat the consensus estimate of 87 cents, among analysts polled by Thomson Reuters.

Benmosche has repeatedly said that AIG was focusing on improving its P&C underwriting, and the company reported its first underwriting profit for the unit since the second quarter of 2009. The Property Casualty insurance segment's first-quarter underwriting profit was $231 million, compared to an underwriting loss of $180 million a year earlier. The unit's loss ratio -- losses either paid or for which reserves were set aside, divided by premiums earned -- was 63.3% in the first quarter, improving from 68.0% a year earlier.

The P&C combined ratio improved to 97.3% in the first quarter from 102.1% a year earlier. The combined ratio is an insurance unit's losses plus expenses divided by premiums earned. A ratio above 100% indicates an underwriting loss.

First-quarter pretax income for the Property Casualty segment was $1.604 billion, increasing from $910 million in the first quarter of 2012.

Deutsche Bank analyst Joshua Shanker rates American International Group a "buy," and said in a note to clients late on Thursday that "these results--after stripping out good weather, alternative investments and non-core items--are still modestly ahead of our expectations, and we expect incremental margin improvement in P&C as well as debt and stock retirement in 2013 to drive forward-looking EPS higher."

Shanker's price target for AIG is $47, and he estimates the company will earn $3.35 a share this year, with earnings increasing to $4.20 a share in 2014.

A Much Better Set of Employment Numbers

The Dow Jones Industrial Average rose 1% to close at 1,472.81, after passing the milestone 15,000 market earlier in the session. The S&P 500 ( SPX.X) and NASDAQ Composite indices ended with gains of over 1%.

Investors cheered a better-than-expected monthly employment report from the Bureau of Labor Statistics, especially in light of the disappointing report from Automatic Data Processing on Wednesday, saying that the U.S. economy added 119,000 jobs during April. The Bureau of Labor Statistics on Friday said that U.S. nonfarm payrolls increased by 165,000 during April, following the addition of 138,000 during March. The March figure was revised upward from 88,000.

The April job-growth figure came in ahead of the consensus estimate of 145,000, among economists polled by Thomson Reuters.

The national unemployment rate improved to 7.5% in April from 7.6% in March, moving to its lowest level since December 2008.

The KBW Bank Index ( I:BKX) was up 0.5% to close at 56.94, with all but 24 index components showing gains for the session, except for JPMorgan Chase ( JPM), which was down 1% to close at $45.57.

The KBW Insurance Index rose 1.4% to close at 154.83, with all but five of the 21 index components rounding out the week with gains.

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

>Contact by Email.

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.

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