American International Group, Inc. (NYSE: AIG) today reported net income of $11.2 billion for the quarter ended December 31, 2010, and $7.8 billion for the full year 2010. Diluted earnings per share were $16.60 for the fourth quarter and $11.60 for the full year, compared with a loss of $18.53 for the third quarter of 2010, and losses of $65.51 and $90.48 for the fourth quarter and full year of 2009, respectively.
Included in the 2010 fourth quarter results is a previously announced $4.2 billion net charge to strengthen Chartis loss reserves and gains of $17.6 billion from the sale of divested businesses, primarily from the proceeds of the AIA Group Limited (AIA) initial public offering and a gain of $4.1 billion from the sale of American Life Insurance Company (ALICO), included in discontinued operations. After-tax operating loss attributable to AIG was $2.2 billion for the quarter and $898 million for the full year.
“We completed several key restructuring milestones in the quarter and we remain focused on long-term growth and building value at our ongoing insurance operations and other businesses,” said Robert H. Benmosche, AIG President and Chief Executive Officer. “In 2010, we said we would realign AIG to grow our businesses and to ultimately repay the U.S. taxpayer. We remain extremely grateful to the taxpayers and have made significant progress since January 2010 towards independence from this support.
“At Chartis, net premiums written remained healthy as we maintained price discipline. In the SunAmerica Financial Group businesses, profitability has held steady and investment performance was solid. SunAmerica’s new business production, customer retention rates, and revitalized distribution relationships speak to the resiliency of this franchise. At International Lease Finance Corporation, we are appropriately managing the fleet and the balance sheet, and United Guaranty Corporation saw first-lien delinquencies decline.
“Our results for the quarter reflected the effects of our comprehensive review of Chartis reserves. As we disclosed earlier this month, we strengthened reserves related to AIG-specific and emerging industry loss trends, primarily in asbestos and workers’ compensation, among other lines. Our reserve review updated our estimated losses for all years, including the more recent accident years 2006 to 2009 – years to which approximately 50 percent of the reserve strengthening, excluding asbestos, applied. At Chartis, we continue to hold more statutory surplus than any commercial property-casualty insurance competitor in the U.S. market.
Mr. Benmosche concluded, “In 2011, as we emerge from our restructuring, AIG will focus on growing our already strong businesses domestically and around the world, risk and capital management, strategic asset management, and cost savings throughout the organization.”
Fourth Quarter Highlights
- Chartis operating loss of $4.0 billion for the quarter compares to a loss of $1.8 billion in the fourth quarter last year, reflecting reserve strengthening of $4.2 billion, net of $435 million in discount and loss sensitive business premium adjustments, or 6.2 percent of Chartis’ total carried loss reserves of $68.1 billion at December 31, 2010. Approximately 80 percent of the total reserve charges were for asbestos, excess casualty, excess workers’ compensation, and primary workers’ compensation, four long-tail lines of business. Fourth quarter net premiums written increased 9.4 percent, reflecting the consolidation of Fuji Fire & Marine Insurance Company (Fuji). Excluding Fuji, worldwide net premiums written declined 3.3 percent due to challenging economic conditions impacting ratable exposures such as payrolls and cargo shipments, and a competitive property-casualty market.
- SunAmerica Financial Group (SunAmerica) operating income of $1.0 billion was $43 million lower than the fourth quarter of 2009. Premiums, deposits, and other considerations totaled $4.9 billion, a six percent decrease from last year, primarily driven by lower sales of individual fixed annuities due to the low interest rate environment experienced in 2010. However, fourth quarter individual fixed annuity sales increased 21 percent over the third quarter.
- Financial Services operating loss of $326 million before net realized gains (losses) compared to operating income of $468 million in the fourth quarter of 2009, resulting primarily from $742 million of impairment charges on certain aircraft at International Lease Finance Corporation (ILFC). Capital Markets reported operating income of $292 million in 2010, up from $154 million in the fourth quarter of 2009 as it continued de-risking initiatives.
- AIG’s Other Operations saw operating income of $470 million for AIG’s Direct Investment business, reflecting significantly lower impairments on real estate investments, and operating income of $154 million at United Guaranty Corporation (UGC), reflecting continued improvement in market conditions, lower reported new delinquencies on first-lien products, a decline in claims and claim adjustment expenses, and the commutation of certain blocks of business, resulting in favorable prior year development.
- AIG sold ALICO for $16.2 billion (including $7.2 billion in cash) and, in an initial public offering, sold 67 percent of its shares of AIA for approximately $20.5 billion. The net cash proceeds from these transactions have been used to repay the Federal Reserve Bank of New York (FRBNY). AIG recognized a $15.5 billion gain (net of tax) on these transactions.
- AIG raised more than $5.5 billion of new, non-government debt through a debt offering, a contingent capital facility, and new bank facilities.
- On January 14, 2011, AIG completed its recapitalization, which included repaying the FRBNY Credit Facility in full utilizing a portion of the proceeds from the AIA and ALICO transactions, partially repaying the government’s ownership interests in special purpose vehicles that hold interests in AIA and ALICO, and exchanging preferred stock held by the U.S. Department of the Treasury and the AIG Credit Facility Trust for AIG common stock.
- AIG recorded a $1.1 billion expense for amortization of the prepaid commitment fee asset in the fourth quarter, including $705 million of accelerated amortization resulting from a $4.7 billion repayment and reduction in the maximum credit available under the FRBNY Credit Facility.
- AIG expects to record a net $3.3 billion pre-tax charge from extinguishment of debt in the first quarter of 2011, primarily representing the accelerated amortization of the remaining prepaid commitment fee asset related to the full repayment and termination of the FRBNY Credit Facility.
- AIG incurred a tax expense of $4.8 billion in the quarter, primarily resulting from the gains related to ALICO, AIA, and the sale of the Otemachi Building in Japan.
- Total equity was $113.2 billion at December 31, 2010, a $15.1 billion increase from $98.1 billion at December 31, 2009.
Chartis reported a fourth quarter operating loss of $4.0 billion, due to reserve additions net of discount and loss sensitive premium adjustments of $4.2 billion, compared to a loss of $1.8 billion in the fourth quarter of 2009. Excluding reserve strengthening, fourth quarter 2010 operating income was relatively flat year over year. Partially offsetting the reserve action was a $346 million improvement in net investment income driven by higher partnership returns.
Fourth quarter 2010 worldwide net premiums written of $7.6 billion increased 9.4 percent compared to the same period last year. Excluding Fuji, worldwide net premiums written declined 3.3 percent due to challenging economic conditions impacting ratable exposures and a competitive property casualty market. Over the past several years, Chartis has strategically sought to reduce writings in the more capital-intensive classes of its commercial business while increasing writings in higher-margin, less volatile segments such as its specialty commercial and consumer businesses, and remains price-disciplined where market rates are unsatisfactory.
The fourth quarter 2010 combined ratio was 160.5, including 49.2 points from reserve strengthening, compared to 132.5 in the fourth quarter of 2009. The full year 2010 current accident year combined ratio, excluding catastrophe losses, was 100.3, compared to 99.3 in the prior year period.
Editor’s Note: The above are selected sections from the release.
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