NEW YORK–(BUSINESS WIRE)–American International Group, Inc. (NYSE: AIG) today reported net income attributable to AIG of $1.8 billion and after-tax operating income of $1.3 billion for the quarter ended June 30, 2011, compared with a net loss of $2.7 billion and after-tax operating income of $793 million for the second quarter of 2010. The second quarter 2010 loss was primarily due to a $3.3 billion non-cash goodwill impairment charge included in discontinued operations. The diluted earnings per share were $1.00 for the second quarter of 2011, representing a return on equity of 8.3 percent, compared with a loss per share of $19.57 for the second quarter of 2010. The 2011 second quarter after-tax operating income per share was $0.69, a 6.3 percent return on equity, compared with after-tax operating income per share of $1.18 for the second quarter last year. Earnings per share for the current period reflect the 1.655 billion shares issued to the United States Treasury Department on January 14, 2011.
“Our results for the second quarter demonstrate the hard work from employees across all of our business units and our unrelenting focus on performance,” said Robert H. Benmosche, AIG President and Chief Executive Officer. “We also achieved a significant recapitalization milestone during the quarter with an $8.7 billion common stock offering, consisting of the issuance and sale of 100 million shares by AIG and the sale of 200 million shares at a profit by the U.S. Treasury. Our continued improving operating results should provide a catalyst for the U.S. Treasury to sell its shares at a profit for the taxpayers. Now that we have fully repaid our debt to the Federal Reserve, we are on the right path to demonstrate AIG’s long-term value as an investment-grade company independent of government support.”
Highlights
- Chartis reported operating income of $789 million for the second quarter of 2011, compared to operating income of $955 million in the second quarter of 2010. Second quarter 2011 results include catastrophe losses of $539 million and reflect no significant prior year loss reserve development. Net premiums written increased 17.6 percent.
- SunAmerica Financial Group (SunAmerica) operating income was $743 million for the second quarter of 2011, compared to $858 million in the second quarter of 2010. Net investment income was lower due to Maiden Lane II fair value changes compared to the second quarter of 2010, while base yields in the current quarter increased to 5.36 percent from 5.00 percent in the first quarter of 2011 with the redeployment of cash to other investments.
- Financial Services reported an operating loss of $146 million for the second quarter of 2011, compared with operating income of $25 million in the second quarter of 2010. These results include an operating loss of $160 million from Capital Markets for the second quarter of 2011, compared to an operating loss of $145 million in last year’s second quarter, largely due to unrealized market valuation losses on the super senior credit default swap portfolio. International Lease Finance Corporation (ILFC) contributed operating income of $86 million for the second quarter of 2011, compared with operating income of $182 million last year.
- AIG’s Parent and Other operations reported operating income of $344 million for the second quarter of 2011, compared to an operating loss of $131 million in the second quarter of 2010. The results include operating income of $13 million from Mortgage Guaranty operations for the second quarter of 2011 compared to operating income of $226 million in the second quarter of 2010. Additionally, AIG’s holding of AIA ordinary shares produced fair value income of $1.5 billion during the quarter, while the value of its holding in Maiden Lane III decreased $667 million from widening spreads on the underlying multi-sector CDO portfolio.
- During the quarter, AIG reduced its tax exempt municipal bond portfolio by approximately $5 billion as part of its investment portfolio strategy. The U.S. municipal bond portfolio is composed primarily of essential service revenue bonds and high-quality tax-backed bonds with 97 percent of the portfolio rated ‘A’ or higher, and represented 9.47 percent of the investment portfolio.
- On May 27, 2011, AIG and the Treasury Department completed a registered public offering of AIG Common Stock. AIG issued and sold 100 million shares of AIG Common Stock for aggregate net proceeds of approximately $2.9 billion and the Treasury Department sold 200 million shares of AIG Common Stock. As a result, the Series G Drawdown Right was terminated, the Series G Preferred Stock was cancelled and the Treasury Department ownership was reduced from approximately 92 percent to approximately 77 percent of the AIG Common Stock outstanding after the completion of the offering.
- The active wind-down of the AIGFP derivatives portfolio was completed by the end of the second quarter of 2011. The remaining AIGFP derivatives portfolio consists predominantly of transactions AIG believes are of low complexity, low risk, supportive of AIG’s risk management objectives or not economically appropriate to unwind based on cost versus benefit analysis, although the portfolio may experience periodic mark-to-market volatility.
- On July 27, 2011, AIG’s agreement to sell its 97.57 percent interest in Nan Shan Life Insurance Company, Ltd. (Nan Shan) to a Taiwan-based consortium for $2.16 billion in cash received final approval from the Taiwanese regulators. The sale is expected to close in the third quarter.
- Total equity was $93.6 billion at June 30, 2011, and book value per share was $49.18, including the effect of shares issued August 1, 2011 for equity units.
CHARTIS
Chartis reported second quarter operating income before net realized capital gains (losses) of $789 million, compared to operating income of $955 million in the second quarter of 2010. Second quarter 2011 results included $539 million of catastrophe losses, including $348 million related to tornadoes in the Midwest, Southeastern and Northeastern regions of the United States; $84 million for U.S. floods and other storms; and $54 million related to the New Zealand earthquake in June, compared to $300 million in catastrophe losses in the second quarter of 2010. Chartis’ 2011 six-month operating income was adversely affected by the extraordinary level of catastrophe losses in 2011, including the $1.3 billion Tohoku earthquake and tsunami.
The second quarter 2011 combined ratio was 104.0 compared to 102.0 in the second quarter of 2010. The current accident year combined ratio, excluding catastrophes, was 97.7, compared to 96.9 in the prior year period. The second quarter 2011 results reflect no significant prior year loss reserve development and no changes in the loss estimate related to the earthquake that occurred in Japan in March.
Second quarter 2011 net premiums increased 2.4 percent and were essentially flat compared to last year, excluding Fuji and the impact of foreign exchange. When those items are included, worldwide net premiums increased 17.6 percent compared to the same period last year. U.S. pricing generally improved during the quarter, primarily driven by commercial property and workers’ compensation, while pricing on other lines was generally stable. Chartis’ retention continued to show positive trends.
Chartis has made significant progress reorganizing its businesses to a more truly global commercial and consumer business. Chartis currently anticipates that it will complete its organization and operating design and related segment reporting changes in the third quarter of 2011.
SUNAMERICA FINANCIAL GROUP
SunAmerica reported operating income of $743 million in the second quarter of 2011 compared to $858 million in the second quarter of 2010. Second quarter 2011 results were affected by reduced net investment income, driven by a $176 million lower fair market valuation of SunAmerica’s holding of ML II compared with income of $120 million in the second quarter of 2010. Excluding ML II, net investment income increased due to higher partnership income and the redeployment of $8.4 billion of cash and short-term investments to higher yielding fixed income securities, including certain ML II securities.
Assets under management of $254.9 billion at the end of the second quarter increased 9 percent compared to $233.8 billion in the second quarter of 2010. Unrealized appreciation of investment securities totaled $4.6 billion compared to $4.1 billion at March 31, 2011.
Premiums, deposits, and other considerations totaled $6.1 billion, a 23.7 percent increase compared to $5.0 billion last year, as both fixed annuities and variable annuity deposits showed significant improvements. Fixed annuity deposits increased 58 percent over the prior year as certain bank distributors negotiated a lower commission in exchange for a higher crediting rate which made SunAmerica offerings more attractive to policyholders. Variable annuity deposits were $832 million in the quarter, a 68 percent increase over the second quarter of 2010 due to competitive product enhancements, reinstatements during the last year at a number of key broker-dealers, increased wholesaler productivity, and improvements in the equity markets. Group retirement products and retail mutual fund deposits also increased 6 percent and 29 percent, respectively. Retail life insurance sales grew 16 percent over the second quarter of last year as product enhancements and efforts to re-engage independent distribution and improve productivity of the career agency force continue to produce results.
FINANCIAL SERVICES
Financial Services reported a second quarter operating loss before net realized capital gains (losses) of $146 million, compared with operating income of $25 million in the second quarter of 2010.
ILFC reported second quarter operating income of $86 million, compared to operating income of $182 million in the second quarter of 2010. During the second quarter of 2011, ILFC recorded rental revenues of $1.1 billion and depreciation expense of $459 million compared to rental revenues of $1.2 billion and depreciation expense of $480 million in the second quarter of 2010, due to a reduction in the size of ILFC’s aircraft fleet under operating leases as a result of the sales of aircraft during 2010 and 2011 and the impact of lower lease rates on used aircraft. ILFC recorded a $61 million loss on the extinguishment of debt and $42 million of impairment charges, fair value adjustments and lease-related charges in the current quarter. At June 30, 2011, ILFC had 933 aircraft in its fleet, compared to 946 at June 30, 2010.
Capital Markets, whose active wind-down of the remaining AIGFP derivatives portfolio was completed as of June 30, 2011, reported a second quarter operating loss of $160 million, compared to an operating loss of $145 million in the second quarter of 2010. The results were primarily due to unrealized market valuation losses related to the super senior credit default swap portfolio, partially offset by improvement related to the net effect of changes in credit spreads on the valuation of Capital Markets derivative assets and liabilities as well as lower operating expenses.
Active wind-down of AIGFP derivatives portfolios:
- The notional amount of the AIGFP derivatives portfolio was reduced 42 percent from $341.3 billion, including $59.9 billion of super senior credit default swap contracts, at December 31, 2010 to $198.4 billion, including $29.1 billion of super senior credit default swap contracts, at June 30, 2011. The notional amount at June 30, 2011 and December 31, 2010 excludes approximately $8 billion and $11.5 billion of intercompany derivatives, respectively.
- The number of outstanding trade positions has been reduced by approximately 1,700, or 44 percent, from approximately 3,900 at December 31, 2010, to approximately 2,200 at June 30, 2011. The June 30, 2011 trade count excludes approximately 4,800 trade positions that are non-derivative asset and liability positions, the management of which was transferred to AIG’s Direct Investment book in 2010.
PARENT & OTHER
AIG’s Parent and Other operations reported second quarter operating income of $344 million, compared to an operating loss of $131 million in the second quarter of 2010. Holdings of AIA ordinary shares produced income of $1.5 billion during the quarter, as this position is recorded at fair value based on the June 30, 2011 closing price on the Hong Kong Stock Exchange. Unallocated corporate expenses totaled $261 million in the quarter compared to $761 million in the second quarter of 2010, which included a significant litigation reserve. AIA’s results were consolidated with those of AIG in the second quarter of 2010.
Mortgage Guaranty reported operating income of $13 million for the second quarter of 2011, compared to operating income of $226 million in the second quarter of 2010. The results for the 2010 quarter reflect $232 million of favorable loss reserve development. For the current quarter, newly reported delinquent loans continued to decline, although overturns of previous rescissions rose.
AIG’s Direct Investment book had second quarter operating income of $93 million before net realized capital gains (losses) compared to operating income of $307 million in the second quarter of 2010, with the lower income primarily driven by substantially wider credit spreads this quarter.
The fair value of AIG’s interest in Maiden Lane III decreased $667 million during the second quarter, compared with an increase of $358 million in the second quarter of 2010, due to wider credit spreads on U.S. housing-related assets in the current quarter. Estimates of future cash flows supporting the recovery of AIG’s investment and share of the residual interests remained steady.
The complete earnings release is available here.
Source: BusinessWire