Asset sales lift AIG's profit to $11.2 billion

AP News
Posted: Feb 24, 2011 6:02 PM
Asset sales lift AIG's profit to $11.2 billion

Bailed-out insurer AIG ended the year on a strong note, earning income of $11.2 billion in the fourth quarter. Most of the profits came from selling and spinning off various business units, primarily two of its life insurance businesses.

Last month American International Group Inc. laid the groundwork to start repaying the American taxpayer. A symbol of the excessive risk that led to the financial crisis, AIG was bailed out by the U.S. government in a package that totaled $182 billion. In January, AIG paid back a portion of the government's loans and renegotiated the rest of the package which led the government to own a 92 percent stake in AIG. The government plans to start selling those shares over the next two years.

AIG earned $16.60 per share in the fourth quarter, the company reported Thursday. In the same period last year, the company reported a loss of $8.87 billion, or $65.51 per share. For the full year, AIG reported net income of $7.8 billion.

The insurance giant's profit came from gains of $17.6 billion primarily from an initial public offering of AIA Group, a Hong Kong unit and from the sale of American Life Insurance Company. These two sales were key elements in the company's ability to raise cash to restructure its bailout terms with the government.

"We completed several key restructuring milestones in the quarter," AIG's chief executive, Robert Benmosche, said in a statement. Benmosche will discuss the company's performance and its outlook for the coming year in a conference call Friday morning, the company's first earnings call in two years.

Investors still have concerns about AIG's ability to generate future earnings. Two weeks ago, the company announced an addition of $4.2 billion to loss reserves at Chartis, its property and casualty insurance business. Chartis is one of AIG's main business lines and its performance is key to the successful sale of AIG shares by the government.

"Just when we're expecting progress, the first data point that we see from the company is a $4 billion charge which raises a big question mark," said Paul Howard, director of research at Solstice Research.

Fitch Ratings lowered its ratings on some of AIG's insurance subsidiaries after the announcement came out.

Howard said that AIG is adding to reserves at a time when rivals Travelers Cos. and Chubb Corp. are doing the opposite: taking money out of their reserves because of lower expected losses. Shares of Travelers and Chubb are trading near 52-week highs, while AIG shares are down 16 percent since the beginning of this year.

Despite those concerns, AIG's quarterly and full-year profit mark a strong turnaround for the company. AIG became a symbol of lax regulation and excess risk on Wall Street during the financial crisis that crested in late 2008.

AIG had written insurance on the value of hundreds of billions in mortgage investments held by financial institutions. When the investments lost value, AIG could not afford to make good on its contracts. Finally, it had to take the government's help to help stay out of bankruptcy.