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AIG swings to loss on writedowns

November 05, 2010|Bloomberg News

American International Group Inc. swung to a third-quarter loss as the bailed-out insurer wrote down the value of units it is selling and took charges tied to repaying rescue loans.

The net loss of $2.4 billion compares with profit of $455 million a year earlier, the New York-based firm said today in a statement. The adjusted net loss, which excludes some investment results and businesses being sold by the company, was $200 million.

Chief Executive Robert Benmosche is selling assets and planning to raise funds from private investors to repay taxpayers and return the company to independence. AIG expects to retire its Federal Reserve credit line with proceeds from the sale of two non-U.S. life units and convert a $49.1 billion Treasury Department stake into common stock by the end of March.

"They're getting back to being a normal company," said Robert Haines, an analyst at CreditSights Inc. in New York. AIG "wants to put on the best face for share sales."

Profit from insurance operations being kept climbed 6.4 percent to $2.05 billion. The net loss includes more than $4 billion in charges tied to restructuring.

Shareholders' equity, a measure of assets minus liabilities, rose about 7 percent to $80.8 billion from $75.5 billion on June 30. Realized losses on investments cost the company $661 million, compared with $1.86 billion in the year- earlier period.

AIG dropped $1.17 to $43.57 at 8:30 a.m. in New York in early trading. The company has climbed about 49 percent this year through yesterday on the New York Stock Exchange, rewarding investors including Bruce Berkowitz, who runs Fairholme Capital Management and manages about a quarter of the publicly traded shares.

The insurer disclosed last month that Benmosche, 66, is undergoing "aggressive" treatment for cancer and that Chairman Steve Miller is available to be interim CEO if needed. AIG's board had begun succession planning before Benmosche's diagnosis because the CEO intended to retire in 2012, he told staff.

Operating income for AIG's Chartis property-casualty insurer, which sells coverage of commercial property, corporate boards and airplanes, rose to $1.07 billion from $719 million a year earlier as premium revenue rose. The company earned 0.7 cent per every premium dollar, compared with a loss of 5.2 cents a year earlier, as claims fell and expenses declined.

Sales at Chartis rose 6.5 percent to $8.60 billion. Industrywide, sales increased for the first time in 13 quarters in the period ended June 30, the Property Casualty Insurers Association of America said in a September statement. The slump was fueled by job cuts and plant closings, which had left commercial clients with less to insure.

The company's U.S. life insurance and retirement services division posted operating income of $978 million, compared with $1.21 billion, on a decline in income from alternative holdings, which include private equity and hedge funds. Premiums and other considerations was little changed at $1.27 billion.

AIG reaped a combined $36.7 billion by divesting AIA Group Ltd. and American Life Insurance Co., the firm said this week. The company also announced in September a $4.8 billion deal to sell a pair of Japanese units to Prudential Financial Inc.

The net loss includes a charges of $1.3 billion tied to the units being sold to Prudential and $1.9 billion at the consumer- lending operation that is being divested. Paying down part of the Federal Reserve credit line contributed to a $1.2 billion accounting charge.

Treasury, which said it expects to earn a profit on the AIG bailout, will sell its common stock in phases over about two years, a person with direct knowledge of the plan said in September. The government will own 1.66 billion AIG shares after the conversion, or about 92 percent of the firm.

The insurer was first rescued in September 2008 after losses on housing market bets by the Financial Products unit. The rescue was revised four times, swelling to $182.3 billion, to extend more credit and lower the interest charged.

AIG is focusing on U.S. life insurance and global property- casualty coverage. The company, which shrank the derivatives unit, has sold more than 30 businesses or assets since 2008, including a U.S. auto unit, a Russian bank, an Israeli mortgage insurer and its New York headquarters building.

"AIG has made substantial progress in restoring its capital structure to something that is more in line with insurance industry standards," John Hall, an analyst at Wells Fargo & Co. with an "underperform" rating on AIG, said in an Oct. 19 note. The company is "heavily reliant" on the government's willingness to restructure its assistance, he said.

AIG said last month that Chief Risk Officer Robert Lewis was resigning after more than 15 years at the firm. Lewis told the Financial Crisis Inquiry Commission in June that the insurer underestimated the risk of derivatives tied to subprime mortgages.

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