AIG, the giant insurer bailed out by the federal government, posted its second straight quarterly profit today, helped by recovery in the value of its investments.
American International Group Inc. shares, which rallied on Thursday ahead of the earnings report, fell sharply in premarket trading, despite results that topped Wall Street expectations. AIG’s main insurance business remained weak.
"Our results reflect continued stabilization in performance and market trends,” Chief Executive Robert Benmosche said in a statement. Benmosche joined the insurer in August, becoming the fourth CEO at AIG since 2008.
The company has received $180 billion of federal aid and is now 80 percent-owned by U.S. taxpayers.
As credit markets improved in the second quarter, asset values rose dramatically, giving AIG the shot in the arm it needed to end a string of seven straight quarterly losses. It posted a second-quarter profit of $1.8 billion.
Third-quarter profit paled in comparison. Net income was $455 million, or 68 cents a share, compared with a loss of $24.47 billion, or $181.02 a share, in the year-earlier quarter.
The latest results included $1.95 billion in special gains, including from the improvement in the value of securities held by AIG Financial Products, the unit largely responsible for AIG’s massive losses in 2008, which led to the U.S. bailout.
While its financial problems stemmed from soured investments, AIG’s insurance divisions have also suffered, as customers grew skittish about the company’s viability and curtailed some business.
Benmosche said AIG started to see signs of stabilization in the third quarter, but its main insurance businesses saw a drop in revenue. The company also made strides in the painful process of winding down AIG FP.
The company said it cut AIG FP’s derivative portfolio by 13 percent in the quarter to about $1.1 trillion.
AIG’s general insurance operations reported a 13 percent decline in net policy sales. Life insurance and retirement services had a 16 percent drop in premium income.
The general insurance and life insurance divisions both had operating profit in the quarter, driven by higher net investment income, compared with losses a year earlier.
Excluding realized gains and losses, AIG’s adjusted third-quarter profit was $1.9 billion, or $2.85 a share. On that basis, four analysts on average expected $1.98 a share, according to Thomson Reuters I/B/E/S.
Once the world’s largest insurer, AIG nearly collapsed under massive losses and collateral demands from credit default swaps sold by AIG FP.
Since September 2008, U.S. taxpayers have put up to $180 billion at AIG’s disposal, including more than $80 billion in loans.
The company has struggled to find buyers for assets, hampering the process of repaying taxpayers. However, its federal loan balance will be reduced by $25 billion in the fourth quarter as it consummates a pact to give the Federal Reserve a preferred stake in two of its largest life insurance units, AIA and Alico.
AIG shares, after rising more than 8 percent on Thursday, were down nearly 11 percent in premarket trade at $34.98.
