(Source: Business Wire)
American International Group, Inc. (AIG) today reported a profit in the
third quarter of 2009, as certain of its businesses continue to
stabilize and the company's results reflected positive market valuation
changes.
For the third quarter ended September 30, 2009, AIG reported net income
attributable to AIG of $455 million, including net income attributable
to AIG common shareholders of $92 million, or $0.68 per diluted common
share, compared with a net loss of $24.5 billion or $181.02 per diluted
share in the third quarter of 2008. Third quarter 2009 adjusted net
income was $1.9 billion, compared with an adjusted net loss of $9.2
billion in the third quarter of 2008.
THIRD QUARTER(in millions, except per share data)
Per Diluted Share (a)
2009 2008 2009 2008
Net income (loss) attributable to AIG $ 455 $ (24,468) $ 0.68 $ (181.02)((b))
To compute adjusted net income, add losses and deduct gains:
Net realized capital gains (losses), net of tax (1,798) (15,056)
Non-qualifying derivative hedging activities gains (losses), net of tax (c) 344 (172)
Adjusted net income (loss) $ 1,909 $ (9,240) $ 2.85 $ (68.36)((b))
-------------------------------------------------------------------------------
NINE MONTHS(in millions, except per share data)
Per Diluted Share (a)
2009 2008 2009 2008
Net loss attributable to AIG $ (2,076) $ (37,630) $ (24.92)(b) $ (287.99)((b))
To compute adjusted net income, add losses and deduct gains:
Net realized capital gains (losses), net of tax (5,288) (23,038)
Non-qualifying derivative hedging activities gains (losses), net of tax (c) 902 (470)
Adjusted net income (loss) $ 2,310 $ (14,122) $ 1.51 $ (108.08)((b))
-------------------------------------------------------------------------------
(a) Share and per share amounts in the 2008 periods have been restated to reflect the 1-for-20 reverse stock split effective June 30, 2009.
(b) Basic shares outstanding were used.
(c) Represents the effect of hedging activities that did not qualify for hedge accounting treatment, including the related foreign exchange gains and losses, and excludes related net realized capital gains (losses).
-------------------------------------------------------------------------------
Exception caught in main.
Exception caught in main.
Commenting on the third quarter results, AIG President and Chief
Executive Officer Robert H. Benmosche said, "Our results reflect
continued stabilization in performance and market trends. AIG employees
are working to preserve the strength of our insurance businesses in a
challenging market by working closely with our distribution partners,
with third quarter 2009 showing signs of stabilization. Pricing in our
commercial property casualty business has been stable. Management
continues to monitor rates closely and maintain underwriting discipline,
turning away some renewal business due to aggressive pricing by existing
and new competitors. AIG also took several important steps in its
restructuring program. At AIGFP, virtually all key risk measures are
down significantly and the earnings again benefited from a positive
unrealized market valuation gain on the Super Senior Credit Default Swap
portfolio. Additionally, we announced the sales of Nan Shan and a
portion of AIG's investment advisory and asset management business, as
well as the combination of our Domestic Life Insurance & Retirement
Services businesses and ongoing efforts to build their value as part of
AIG.
"Improved market performance, together with application of the new
investment impairment accounting standard adopted in the second quarter
of 2009, drove a reduction in net realized capital losses compared to
third quarter 2008 and positive valuation changes for our Maiden Lane
Interests, as well as increases in partnership and mutual fund income.
These gains were offset by impairments in the Asset Management segment,
higher current accident year losses related to credit crisis exposures
and prior accident year losses in General Insurance and lower income
from Life Insurance & Retirement Services investment-linked and annuity
products globally.
"We continue to focus on stabilizing and strengthening our businesses,
but expect continued volatility in reported results in the coming
quarters, due in part to charges related to ongoing restructuring
activities. When we close the special purpose vehicles with respect to
AIA and ALICO with the Federal Reserve Bank of New York (FRBNY), we
expect to recognize an approximate $5 billion charge for accelerated
amortization of the prepaid commitment asset. These transactions are
expected to close in the fourth quarter."
The following table summarizes the significant items included in the
third quarter adjusted net income (loss):
(in millions, after tax) Three Months EndedSeptember 30,
Significant items, affecting adjusted net income (loss) 2009 2008
FRBNY credit line interest and amortization $ (814) $ (521)
Market volatility-related:
AIGFP credit valuation adjustment $ 475 $ (705)
AIGFP operating results, including unrealized market valuation gains (losses) 554 (4,356)
Net gains related to retained Maiden Lane interests 917 -
Total market volatility-related activities $ 1,946 $ (5,061)
Other:
Asset Management real estate impairments $ (262) $ -
Goodwill impairments (181) (432)
Discrete period tax items 19 (3,628)
Total Other $ (424) $ (4,060)
-------------------------------------------------------------------------------
TOTAL EQUITY
At September 30, 2009, total equity was $76.5 billion, a $14.4 billion
increase from $62.1 billion at June 30, 2009. The increase includes $455
million of net income attributable to AIG, $12.1 billion of unrealized
appreciation of investments, $2.1 billion from a draw-down of the
Department of the Treasury Commitment related to the Series F Fixed Rate
Non-Cumulative Preferred Stock, partially offset by a $350 million
reduction in non-controlling interests.
PROGRESS ON MANAGEMENT'S PLANS FOR STABILIZATION OF AIG AND REPAYMENT
OF AIG'S OBLIGATIONS
Since September 2008, AIG has been working to execute an orderly asset
disposition plan, protect and enhance the value of its key businesses,
and position these franchises for the future. AIG continually reassesses
this plan to maximize value while maintaining flexibility in its
liquidity and capital, and expects to accomplish this over a longer time
frame than originally contemplated.
Maximizing the Value of the Individual Businesses:
The AIA and ALICO special purpose vehicle (SPVs) transactions,
announced in the second quarter of 2009, are expected to be
consummated in the fourth quarter of 2009 resulting in a $25 billion
reduction in the balance and amount available under the FRBNY
Facility. This reduction is expected to result in a pre-tax charge of
approximate $5 billion related to the accelerated amortization of the
prepaid commitment fee.
AIG announced that it is combining its domestic life and retirement
services businesses to enhance their market competitiveness.
On October 30, 2009, AIG announced that it will retain AIG Star Life
and AIG Edison Life, its two Japanese life insurance companies, for
the foreseeable future.
Sales of Businesses and Assets:
AIG continues to make progress on its disposition plan. During the first
nine months of 2009 and through October 31, 2009, AIG entered into
agreements to sell or completed the sale of operations and assets that
are expected to generate a total of approximately $5.6 billion in net
after-tax proceeds that will be available to repay outstanding
borrowings and reduce the amount of the FRBNY Facility upon closing. AIG
continues to engage in productive discussions with potential buyers for
a number of its other businesses.
Announced Dispositions:
On September 5, 2009, AIG entered into an agreement to sell a portion
of its investment advisory and asset management business, for
approximately $300 million in cash, plus additional future
consideration that includes a performance note and a continuing share
of carried interest.
On October12, 2009, AIG entered into an agreement to sell the 97.57
percent share of Nan Shan Life Insurance Company, Ltd. (Nan Shan) held
through its subsidiaries to a consortium for approximately
$2.15billion. As a result of this transaction, AIG expects to meet
the criteria for "held-for-sale" accounting with respect to Nan Shan
and recognize a loss of approximately $1.4 billion net of taxes in the
fourth quarter of 2009.
Status of Government Support:
At September 30, 2009, AIG's total balance outstanding from the FRBNY
Facility was $41.0 billion, including $35.8 billion of net borrowings
and $5.2 billion of accrued compounding interest and fees, with
availability of $24.2 billion. Interest and fees accrued have been
charged against AIG's earnings.
As of September 30, 2009, AIG had drawn down $3.2 billion, including
$2.1 billion in the third quarter of 2009, from $29.8 billion
available under the Series F Preferred Stock Department of the
Treasury Commitment.
As of September 30, 2009, AIG's total balance outstanding from the
FRBNY Commercial Paper Funding Facility was $9.6 billion among AIG
Funding, Inc., Curzon Finance LLC and Nightingale Finance LLC.
Although the current funding limit is $15.2 billion the program will
cease to purchase commercial paper as of February 1, 2010 unless
extended by the Board of Governors of the Federal Reserve.
Status of Unwinding AIG Financial Products Corp:
AIGFP reduced the notional amount of its derivative portfolio by 28
percent from approximately $1.6 trillion at December 31, 2008, to
approximately $1.1 trillion at September 30, 2009. During the third
quarter of 2009, the derivative portfolio was reduced 13 percent from
approximately $1.3 trillion at June 30, 2009.
AIGFP reduced the number of trade positions in its portfolio by 43
percent from approximately 35,000 at December 31, 2008, to
approximately 20,000 at September 30, 2009. During the third quarter
of 2009, the number of trade positions was reduced 12 percent from
approximately 22,500 at June 30, 2009.
On August 11, 2009, AIGFP completed the sale of its energy and
infrastructure investment assets, realizing aggregate net proceeds of
$619 million. In connection with the AIGFP wind-down process, certain
other assets have been sold, or are under contract to be sold. The
proceeds from these sales will be used to fund AIGFP's wind-down and
are not included in the amounts described above under sales of
businesses.
GENERAL INSURANCE
General Insurance, branded as Chartis in July 2009, reported operating
income before net realized capital gains (losses) of $722 million in the
third quarter of 2009, compared to $105 million in the third quarter of
2008, reflecting improvement of $612 million in net investment income,
primarily due to positive partnership income. Third quarter 2009
underwriting losses were primarily driven by credit crisis related
claims and continued adverse development of prior accident year loss
reserves. Third quarter 2008 underwriting losses were primarily driven
by catastrophe losses.
General Insurance recorded net premiums written of $8.1 billion in the
third quarter of 2009, a 13 percent decline compared to last year's
third quarter.The decline was partially due to the effect of foreign
exchange, the sale in 2008 of the unit's Brazilian operations, and the
strategic decision to remain price disciplined, particularly in workers'
compensation, as well as to the overall effect of the weakened economy.
However, business retention was at its highest level since September of
2008, new business written exceeded $1.1 billion for the quarter, and
pricing remained stable.
General Insurance combined ratio in the third quarter 2009 was 105.2
compared to 104.5 in the prior year period. The result reflects adverse
loss development from prior accident years, whereas results in the
comparable period in 2008 reflected favorable development from prior
accident years. Additionally, a significant portion of the increase in
the current accident year loss ratio is the result of the worldwide
financial credit crisis and a competitive rate environment. For the
first nine months of 2009, the current accident year combined ratio was
97.5.
Commercial Insurance combined ratio was 106.4 in the quarter, a decrease
of 2.6 points from the comparable prior year period. This decrease was
primarily driven by the significant reduction in catastrophe losses,
partially offset by higher net adverse development from prior accident
years. For the first nine months of 2009, the current accident year
combined ratio was 98.0.
Foreign General Insurance combined ratio in the third quarter 2009 was
103.4, an increase of 6.2 points from the comparable prior period,
primarily driven by an increase in charge offs and transition costs as
well as losses related to the worldwide financial crisis. For the first
nine months of 2009, the current accident year combined ratio was 96.5.
At September 30, 2009, General Insurance net loss and loss adjustment
reserves totaled $60.4 billion, an increase of $407 million from June
30, 2009. The foreign exchange effect for the third quarter of 2009 was
an increase in reserves of $247 million. For the third quarter of 2009,
net adverse loss development from prior accident years, excluding
accretion of discount, was approximately $246 million. At September 30,
2009, overall net loss and loss adjustment reserves including non-core
insurance businesses totaled $64.9 billion, a decrease of $897 million
from June 30, 2009.
LIFE INSURANCE & RETIREMENT SERVICES
Life Insurance & Retirement Services third quarter 2009 operating income
before net realized capital gains (losses) was $2.2 billion compared to
$1.0 billion in the third quarter of 2008, reflecting a difficult, but
improving operating environment. Assets under management in the
investment and retirement oriented products grew over the second quarter
of 2009 helped by improved net flows and upward trends in equity
markets. Net investment income increased over the third quarter of 2008
and second quarter of 2009 primarily from higher partnership and mutual
fund returns as well as favorable valuation adjustments from the
retained interest in Maiden Lane II, which offset the negative effects
of higher liquidity and the de-risking of certain investment portfolios.
Net realized capital losses were significantly lower than the third
quarter of 2008 and continued to be lower than in the past several
quarters due to improving market conditions and the adoption of new
accounting pronouncements during the second quarter.
Premiums and other considerations were $7.9 billion in the third quarter
of 2009, down 16.1 percent from the third quarter 2008 but relatively
flat with the first two quarters of 2009, as businesses continue to
stabilize. Premiums, deposits, and other considerations amounted to
$13.7 billion, a decline of 38.6 percent compared to the third quarter
of 2008. The decline was due principally to lower sales of
investment-oriented life and retirement services products as sales
efforts remained challenged due to the lingering effect of negative AIG
events earlier in the year and an overall decline in industry sales of
investment-oriented life and retirement services products.
In AIG's Foreign Life Insurance & Retirement Services operations, sales
activity has continued to improve in most regions, although sales
activity in foreign investment-oriented life and retirement products,
especially in the U.K., Japan and Korea, remain negatively affected by
AIG events. AIA and ALICO have continued to experience improving
operating results following revitalization of their distribution
networks and the stabilization of global economic activities. Revenues
before realized capital gains rose significantly from the third quarter
of 2008 and remained largely consistent with the past two quarters.
Domestic Life Insurance & Retirement Services third quarter 2009
operating income before net realized capital gains (losses) of $1.1
billion showed an improvement over the third quarter of 2008 and both
the first and second quarters of 2009. Premiums, deposits, and other
considerations were down 38 percent over the third quarter of 2008 as a
result of ratings downgrades and the effects of negative AIG publicity
during the past year. However, premiums deposits and other
considerations were up 10 percent over the second quarter of 2009,
principally due to improvements in fixed annuity and group retirement
deposits. Investment results continued to improve and life insurance
mortality remained at favorable levels during the third quarter of 2009.
Domestic Retirement Services improved results are driven by the absence
of unfavorable DAC unlocking adjustments in the current quarter, which
totaled $728 million in the third quarter of 2008. At September 30,
2009, assets under management totaled $208.3 billion, up from $190.6
billion at December 31, 2008.
