By CYRIL TUOHY, managing editor of Risk & Insurance®
AIG on Friday posted a profit of $455 million in the third quarter compared with a $24.46 billion loss in the year-ago period, even as the premium volume continued to decline in both its property/casualty and life and retirement units.
The company benefited from an improved stock market, new investment impairment accounting standards, changes in the value of the company's Maiden Lane investment vehicle, along with partnership and mutual-fund income, the company said.
The company, however, remains a wounded giant, according to one analyst.
"Even with the profit, AIG's still a sick company," said Robert Haines, an analyst at CreditSights Inc. in New York. "The trends of the underlying business units are ultimately more important to the company than a positive quarterly figure."
Chartis, the company's general insurance division, reported operating income of $722 million, up from $105 million in the third quarter of 2008. Written premiums--the amount of business the property/casualty unit is generating--declined in the third quarter compared with the year-ago period.
Chartis reported net premiums written of $8.1 billion in the third quarter, down 13 percent compared with the year-ago period. With clients laying off employees, shutting down plants and otherwise readjusting to new economic realities, companies simply have less to insure.
Life Insurance & Retirement Services, which reported operating income of $2.2 billion in the third quarter compared with $1 billion in the year-ago period, generated premium of $7.9 billion in the third quarter, down 16.1 percent from the third quarter in 2008.
In addition to having lower property values and fewer lives to insure, AIG is finding itself under pressure from competitors. Some risk managers now routinely spread the placement of insurance among various insurers rather than place all coverage with a single company in a move to diversify insurance financial and credit risk. And more insurers have entered the U.S. market during the past year, creating even more competition.
STABLE AND DISCIPLINED
Despite writing less business, President and CEO Robert H. Benmosche said the results reflected a stable and disciplined company.
"Management continues to monitor rates closely and maintain underwriting discipline, turning away some renewal business due to aggressive pricing by existing and new competitors," said Benmosche in a statement.
Insurance rates have been dropping all year, according to surveys from the Council of Insurance Agents & Brokers. Rates fell an average of 5.8 percent in the third quarter, on top of an average decline of 4.9 percent in the second quarter. That decline followed an average drop in rates of 5.1 percent in the first quarter.
AIG was bailed out last year by the U.S. government after its financial products subsidiary placed exceedingly bad bets on the financial markets by tying credit default insurance to subprime mortgages securities. It pushed AIG to the brink of collapse. The government has authorized total assistance to AIG to the tune of $182.3 billion. The property/casualty operations, which posted profits during this time, were protected from the parent company's problems by state insurance laws.
Outstanding debt and equity balance requiring repayment from AIG are at $83.6 billion, according to the company. Of that, AIG must repay the Federal Reserve Bank of New York $38.8 billion.
In addition, the U.S. Treasury has invested $41.6 billion in AIG preferred stock through the Trouble Assets Relief Program. The Treasury has also provided an equity capital commitment of up to $29.83 billion--of which AIG had drawn down $3.2 billion as of Oct. 2.
The company, which released earnings on Friday, did not conduct a conference call.
November 9, 2009
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