|AIG Reports $2.4 Billion Net Loss Attributable to AIG for the Third Quarter of 2010 Driven by Restructuring-Related Charges; Continuing Insurance Operating Income Remains Stable|
NEW YORK, Nov 05, 2010 (BUSINESS WIRE) --
American International Group, Inc. (AIG) today reported a net loss attributable to AIG of $2.4 billion for the third quarter of 2010, or a loss of $17.62 per diluted common share, compared to net income of $455 million, or $0.68 per diluted common share, in the third quarter of 2009. Income from continuing insurance operations was stable, at $2.1 billion.
The net loss in the quarter is primarily attributable to the following:
The U.S. federal income tax effects of current period activity are generally offset by changes in AIG's deferred tax asset valuation allowance due to limitations on AIG's ability to fully recognize income taxes; therefore all amounts in this press release are before income taxes, unless otherwise noted.
As a result of the announced sales of ALICO, AGF, AIG Star and AIG Edison, the results of these entities are reported as discontinued operations. In addition, although the previously announced sale of Nan Shan was not approved by regulatory authorities in Taiwan, AIG is pursuing other opportunities to divest Nan Shan and believes a sale will be completed within twelve months. Therefore, AIG continues to report Nan Shan as a discontinued operation. Comparative periods have been revised accordingly and these companies' results are not included in the Recap of Third Quarter Results table above.
Discontinued operations loss before income taxes totaled $2.5 billion, including the loss on the pending sale of AGF and the AIG Star and AIG Edison goodwill impairment charge discussed above, compared to income before taxes of $312 million in the comparable 2009 period.
AIG's continuing insurance operations earned $2.1 billion and $1.9 billion before tax in the third quarter of 2010 and the third quarter of 2009, respectively.
Chartis' third quarter 2010 operating income before net realized capital gains (losses) was $1.1 billion compared to $719 million in the third quarter of 2009. Results were primarily driven by an improvement in underwriting income. Third quarter 2010 results reflect the consolidation of Fuji Fire & Marine Insurance Company ("Fuji") following the previously announced acquisition of a controlling stake in this publicly-traded Japanese insurance company.
The third quarter of 2010 combined ratio was 99.3 compared to 105.2 in the prior year period. The current period combined ratio, excluding catastrophe losses, was 98.4, compared to 104.5 in the prior year, a 6.1 point improvement. Chartis' accident year loss ratio improved 3.5 points as the prior year period included $200 million of losses related to worldwide financial credit crisis claims. Chartis' expense ratio improved by 1.5 points from the prior year period, to 28.2, reflecting the acquisition and consolidation of Fuji.
In the current quarter, Chartis recorded $208 million of adverse prior year development, net of reserve discount, compared to $246 million of adverse development in the prior year period. Included in the 2010 prior year development is $122 million, net of reserve discount, related to asbestos claims recorded during the current year and one large claim attributable to the 2007 California wildfires.
Worldwide net premiums written of $8.6 billion increased by 7 percent compared to the same period last year. Excluding Fuji, worldwide net premiums written declined by 4 percent as a result of challenging economic conditions impacting ratable exposures and a competitive property casualty market. Chartis continues to pursue risk management initiatives to manage its aggregate exposure to certain lines of business and remains price disciplined where market rates are unsatisfactory.
DOMESTIC LIFE INSURANCE & RETIREMENT SERVICES
SunAmerica Financial Group reported third quarter 2010 operating income before net realized capital gains (losses) of $978 million compared to $1.2 billion in the third quarter of 2009. The decrease reflected a decline in net investment income from partnerships and $94 million less income from the change in the fair value of the retained interest in Maiden Lane II, as well as higher deferred acquisition costs (DAC) and sales inducement amortization due to net realized capital gains of $20 million in the third quarter of 2010 compared to net realized capital losses of $1.4 billion in the third quarter of 2009. The improvement in realized gains (losses) results principally from lower other-than-temporary impairment charges and a decrease in derivative fair value losses on interest rate and foreign exchange derivatives, net of foreign exchange transactions.
Assets under management grew to $244.6 billion at September 30, 2010, a 7 percent increase compared to September 30, 2009, primarily due to positive equity market returns in the latter part of 2009 through September 2010 and a rally in the bond markets. Premiums, deposits, and other considerations totaled $4.4 billion, an increase of 2 percent compared to the third quarter of 2009, as group retirement products and individual variable annuities reported increases in sales. Individual variable annuity sales increased due to product enhancements, reinstatement of new sales activity at a number of key broker-dealers and increased wholesaler productivity. However, individual fixed annuity deposits decreased primarily due to the low interest rate environment in 2010.
Surrender rates have improved compared to the prior year for group retirement products, individual fixed annuities and individual variable annuities as surrenders have returned to more normal levels. Life insurance sales were significantly higher than in the third quarter of 2009, driven by higher term and private placement variable universal life sold through independent and career distribution. American General Life and Accident Insurance Company continues to recruit new agents and advisors while increasing distribution productivity.
FOREIGN LIFE INSURANCE & RETIREMENT SERVICES
Following the classification of ALICO, Nan Shan, AIG Star and AIG Edison as discontinued operations, AIG's remaining Foreign Life Insurance & Retirement Services operations are conducted through AIA and American International Reinsurance Company, Ltd. (AIRCO).
Foreign Life Insurance & Retirement Services, principally AIA, reported third quarter 2010 pre-tax operating income before net realized capital gains (losses) of $534 million compared to $409 million in the third quarter of 2009.
Premiums and other considerations increased in the third quarter 2010 to $2.6 billion, compared to $2.2 billion for the same period in 2009, due to the favorable effect of foreign exchange as well as higher in-force business as a result of improvement in persistency from Hong Kong, Singapore, Malaysia, Thailand and China.
On October 29, 2010, AIG completed an initial public offering of 8.08 billion shares of AIA for aggregate gross proceeds of approximately $20.51 billion. Upon completion of the initial public offering, AIG owned approximately 33 percent of AIA's outstanding shares.
AIG's Financial Services subsidiaries engage in diversified activities including commercial aircraft and equipment leasing and capital markets, which are conducted through ILFC and AIG Financial Products Corp (AIGFP). Following the classification of AGF as a discontinued operation in the third quarter of 2010, AIG's remaining consumer finance businesses are now reported in AIG's Other Operations category as part of noncore businesses.
During the third quarter of 2010, AIG's Asset Management group undertook the management responsibilities for non-derivative assets and liabilities of the Capital Markets businesses of the Financial Services segment. These assets and liabilities are being managed on a spread basis, in concert with the Matched Investment Program. Accordingly, gains and losses related to these assets and liabilities, primarily consisting of credit valuation adjustment gains and losses, are reported in AIG's Other operations category as part of Asset Management - Direct Investment Business. Prior period amounts have been revised to conform with the current period presentation. Intercompany interest related to loans from AIG Funding, Inc. to AIGFP is no longer being allocated to Capital Markets from Other Operations. The remaining Capital Markets run-off derivatives business continues to be reported in the Financial Services segment as part of Capital Markets results.
Financial Services reported a third quarter 2010 operating loss before net realized gains (losses) and the effect of hedging activities that did not qualify for hedge accounting treatment of $81 million, compared to $1.2 billion of operating income during the third quarter of 2009, with Capital Markets operating earnings offset by losses in Aircraft Leasing.
Capital Markets, which continues the process of winding down AIGFP's businesses and portfolios, reported operating income of $148 million in the third quarter of 2010, compared to operating income of $891 million in the third quarter of 2009. Capital Markets reported unrealized market valuation gains related to its super senior credit default swap portfolio of $152 million in the third quarter of 2010 and unrealized market valuation gains of $959 million in the third quarter of 2009. Capital Markets was negatively affected by the net effect of changes in credit spreads on the valuation of derivatives of $63 million and $233 million for the third quarter of 2010 and 2009, respectively, primarily on interest rate and foreign exchange contracts.
Status of unwinding AIGFP:
ILFC reported an operating loss of $218 million for the third quarter of 2010 compared to operating income of $365 million in the third quarter of 2009. During the third quarter of 2010, ILFC recorded asset impairment losses of $422 million on certain aircraft in its fleet, reflecting management's outlook related to the future recovery of the airline industry due to a decrease in demand for certain aircraft types, increased volatility in fuel costs and changes in other macroeconomic conditions which, when aggregated, resulted in lower estimated future lease rates. Additionally, ILFC recorded asset impairment losses of $22 million related to aircraft sales and $21 million related to potential aircraft sales. Increased interest expense and an increase in the provision for overhauls also contributed to the lower third quarter results. At September 30, 2010, ILFC had committed to purchase 115 new aircraft deliverable from 2011 through 2019, at an estimated aggregate purchase price of $13.5 billion, the majority of which is due after 2015, with $282 million payable through 2011.
United Guaranty Corporation (UGC), AIG's mortgage guaranty insurer, reported a pre-tax loss of $124 million for the third quarter of 2010, compared to a pre-tax loss of $461 million in the same period in 2009. The improvement reflects lower levels of newly reported delinquencies in first-lien and international products, higher mortgage cure rates on existing first-lien and international delinquent loans, higher rescission rates on first-lien claims and the recognition of stop loss limits on certain second-lien policies, partially offset by increased delinquencies in private student loans.
The Asset Management business results in the third quarter of 2010 included an operating loss before net realized capital gains (losses) of $27 million compared to a $233 million operating loss in the third quarter of 2009, as reduced impairment losses on investment properties were partially offset by increased unfavorable credit valuation adjustments in the Direct Investment business. In 2009, the Institutional Asset Management business incurred significant losses due to goodwill impairments and losses from consolidated warehouse investments that did not recur in 2010.
Interest expense and amortization on the FRBNY Credit Facility was $1.3 billion in the third quarter of 2010, essentially unchanged from the third quarter of 2009, reflecting a lower amount of periodic amortization offset by accelerated amortization resulting from a $4.6 billion reduction in the balance outstanding and the maximum credit available under the FRBNY Credit Facility, primarily utilizing proceeds from the settlement of ILFC debt.
The fair value of AIG's interest in Maiden Lane III increased $301 million during the third quarter, compared to an increase of $1.2 billion in the prior year quarter.
Unallocated corporate expenses of $239 million in the quarter increased from $128 million in the prior year period, primarily reflecting a litigation provision in connection with a workers' compensation matter.
At September 30, 2010, total equity was $108.7 billion, a $10.6 billion increase from $98.1 billion at December 31, 2009.
Commenting on the third quarter, AIG President and Chief Executive Officer Robert H. Benmosche said, "We were extremely pleased to announce a few weeks ago our plan to repay the U.S. government. We will continue with our aggressive plan to close pending transactions in order to repay the FRBNY in full, and provide for the exit of U.S. Treasury ownership over time. Repayment of the FRBNY Credit Facility, in full, will trigger an accelerated amortization of the balance of the prepaid commitment fee asset which stood at $4.7 billion at September 30. On October 29, we launched a successful IPO of AIA under the skillful leadership of Mark Tucker. On November 1, we closed on the sale of ALICO. We thank Rod Martin for his outstanding leadership and wish him success in his future endeavors. We expect to close on the sale of AGF later this year, and the sale of AIG Star and AIG Edison early next year.
"Importantly, however, as we accomplish these critical steps in the restructuring, AIG's continuing insurance operating results remain solid, with $2.1 billion of pre-tax operating income generated in the quarter by Chartis and SunAmerica Financial Group. Despite soft market conditions in the property casualty market and a low interest rate environment, these businesses have demonstrated their market leadership and are maintaining their discipline. We continue to focus on maintaining financial strength and underwriting discipline, improving efficiency and transparency, and better balancing risk and return. SunAmerica Financial Group is solidly profitable and making good progress in re-establishing distribution and sales momentum, although fixed annuity sales were slowed by the extraordinarily low interest rate environment.
"During the balance of this year, AIG will focus on the following priorities: completing the definitive documentation and executing the transactions contemplated by the Recapitalization Agreement in Principle, closing the pending sales transactions, and implementing plans to monetize securities received upon the sale of ALICO, developing plans to monetize additional shares of AIA, pursuing options for a sale of Nan Shan, and continuing to unwind AIGFP's exposure. Of utmost importance, however, is the continued stabilization and strengthening of AIG's continuing businesses."
PROGRESS ON MANAGEMENT'S PLANS FOR STABILIZATION OF AIG AND REPAYMENT OF ITS OBLIGATIONS
Since September 2008, AIG has been working to protect and enhance the value of its key businesses, execute an orderly asset disposition plan, and position itself for the future. AIG continually reassesses its plan to maximize value while maintaining flexibility in its liquidity and capital.
Sales of Businesses and Specific Asset Dispositions:
AIA Initial Public Offering:
AIG Star and AIG Edison:
Additional supplementary financial data is available in the Investor Information section at www.aig.com.
It should be noted that the recorded comment, the earnings release and the financial supplement may include projections and statements which may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These projections and statements are not historical facts but instead represent only AIG's belief regarding future events, many of which, by their nature, are inherently uncertain and outside AIG's control. These projections and statements may address, among other things: the consummation of the transactions contemplated by the Recapitalization Agreement in Principle with the FRBNY, Department of the Treasury and the AIG Credit Facility Trust; the number, size, terms, cost, proceeds and timing of dispositions and their potential effect on AIG's businesses, financial condition, results of operations, cash flows and liquidity (and AIG at any time and from time to time may change its plans with respect to the sale of one or more businesses); AIG's long-term business mix which will depend on the outcome of AIG's asset disposition program; AIG's exposures to subprime mortgages, monoline insurers and the residential and commercial real estate markets; AIG's ability to retain and motivate its employees; and AIG's strategy for customer retention, growth, product development, market position, financial results and reserves. It is possible that AIG's actual results and financial condition will differ, possibly materially, from the anticipated results and financial condition indicated in these projections and statements. Factors that could cause AIG's actual results to differ, possibly materially, from those in the specific projections and statements include: a failure to consummate the transactions contemplated by the Recapitalization Agreement in Principle; developments in global credit markets; and such other factors as discussed throughout Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 1A. Risk Factors in each of AIG's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, AIG's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 and AIG's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, and throughout Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations and in Part I, Item 1A. Risk Factors of AIG's Annual Report on Form 10-K for the year ended December 31, 2009. AIG is not under any obligation (and expressly disclaims any obligation) to update or alter any projection or other statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.
American International Group, Inc. (AIG) is a leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services around the world. AIG common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo.
Comment on Regulation G
This press release, including the financial highlights, includes certain non-GAAP financial measures. The reconciliations of such measures to the most comparable GAAP figures in accordance with Regulation G are included within the relevant tables or in the third quarter 2010 Financial Supplement available in the Investor Information section of AIG's website, www.aig.com.
Throughout this press release, AIG presents its operations in the way it believes will be most meaningful and useful, as well as most transparent, to the investing public and others who use AIG's financial information in evaluating the performance of AIG. That presentation includes the use of certain non-GAAP measures. In addition to the GAAP presentations, in some cases, revenues, net income, operating income and related rates of performance are shown exclusive of Maiden Lane interests, the effect of dispositions, interest and amortization related to the FRBNY Credit Facility, the recognition of other-than-temporary impairments, restructuring-related activities, conversion of the Series C Preferred Stock, realized capital gains (losses), the effects of variable interest entities, the effect of non-qualifying derivative hedging activities, the effect of goodwill impairments, tax valuation allowances, credit valuation adjustments, unrealized market valuation gains (losses), UGC operating results, the effect of catastrophe-related losses and foreign exchange rates and the bargain purchase gain on the Fuji acquisition.
In all such instances, AIG believes that excluding these items permits investors to better assess the performance of AIG's underlying businesses. AIG believes that providing information in a non-GAAP manner is more useful to investors and analysts and more meaningful than the GAAP presentation.
Although the investment of premiums to generate investment income (or loss) and realized capital gains or losses is an integral part of both life and general insurance operations, the determination to realize capital gains or losses is independent of the insurance underwriting process. Moreover, under applicable GAAP accounting requirements, losses can be recorded as the result of other than temporary declines in value without actual realization. In sum, investment income and realized capital gains or losses for any particular period are not indicative of underlying business performance for such period.
AIG believes that underwriting profit (loss) provides investors with financial information that is not only meaningful but critically important to understanding the results of property and casualty insurance operations. Operating income of a property and casualty insurance company includes three components: underwriting profit (loss), net investment income and realized capital gains (losses). Without disclosure of underwriting profit (loss), it is impossible to determine how successful an insurance company is in its core business activity of assessing and underwriting risk. Including investment income and net realized capital gains (losses) in operating income without disclosing underwriting profit (loss) can mask underwriting losses. The amount of net investment income may be driven by changes in interest rates and other factors that are totally unrelated to underwriting performance.
Underwriting profit (loss) is an important measurement used by AIG senior management to evaluate the performance of its property and casualty insurance operations and is a standard measure of performance used in the insurance industry. Further, the equity analysts who follow AIG exclude the realized capital transactions in their analyses for the same reason and consistently request that AIG provide the non-GAAP information.
Life and retirement services production (premiums, deposits and other considerations), gross premiums written, net premiums written and loss, expense and combined ratios are presented in accordance with accounting principles prescribed or permitted by insurance regulatory authorities because these are standard measures of performance used in the insurance industry and thus allow for more meaningful comparisons with AIG's insurance competitors.
SOURCE: American International Group, Inc.
American International Group, Inc.