AIG reports 2Q Profit, First Since 2007

 

Saturday, Aug 08,2009, 9:45:23 AM   Click:

NEW YORK_American International Group Inc. reported its first quarterly profit since 2007 on Friday that the government controlled by the insurer saw the value of certain of its assets recover degraded.

AIG said in its basis of the results of insurance operations decreased during the second quarter due to weak economy, a trend reported by other insurers. But investors seemed relieved by the report of the company. AIG share jumped $ 4.11, or 18.2 percent, to $ 26.64 in midday trading Friday.

AIG said it earned $ 1.82 billion. Of this amount, $ 311 million, or $ 2.30 per share, was attributable to common shareholders, because the government owns 80 percent of the company after it hit last fall.

A year earlier, AIG lost $5.4 billion, or $41.13 per share.

Total revenue rose 48 percent, to $29.53 billion from $19.93 billion a year earlier.

Chairman and CEO Edward M. Liddy said in a prepared statement that company was still contending with the aftereffects of the company's near-collapse last fall. He said "performance trends stabilized from the first quarter," but added that AIG's financial results would continue to be volatile in future quarters, in part because of accounting charges related to its ongoing restructuring.

AIG now has received a government loan package worth up to $182.5 billion. The company is in the process of trying to sell off some of its assets to begin to repay the government money. It said in a filing with the Securities and Exchange Commission on Friday that it expects proceeds of about $8 billion from sales so far this year, giving it about $4.6 billion to begin repaying debts, including what it owes the government.

The company said its profit was driven by the stabilizing value of some of its riskier investments, including in its AIG Financial Products Corp. portfolio, the division responsible for many of the transactions that prompted the government bailout last fall.

AIG's near-collapse was due to risky contracts such as credit default swaps, which act as insurance to protect an investor against default on an investment such as a mortgage-backed security. The financial-products division was able to increase the value of remaining swaps on its books by $636 million during the quarter, thanks to improving credit markets. In the second quarter of 2008, AIG cut the value of those holdings by $5.57 billion.


AIG has been unwinding its derivatives, reducing the number it holds 36 percent to 22,500 as of the end of June. The value of those investments has been reduced by 13 percent to about $1.3 trillion, the company said. Still, many of the contracts are long-term so the company "expects that an orderly wind-down will take a substantial period of time," it said.

The company said operating income in its general insurance business, which includes property and casualty coverage, fell to $1 billion from $1.7 billion a year earlier, reflecting a 19.2 percent drop in premiums written, or new and renewed insurance contracts. Commercial insurance premiums written fell 18.2 percent.

AIG said its general insurance business was hurt by the recession and by higher payouts on catastrophic losses.

Its life insurance business had operating income of $1.8 billion, compared to a $2.4 billion loss a year earlier. AIG said it had fewer assets under managment, the result of the huge drop in the stock market over the past year, but that the recovery in the markets was improving the performance of that part of the company.

AIG's subsidiary International Lease Finance Corp., which leases aircraft to airlines, saw its operating profit fall to $335 million, from $352 million during the same period last year. The decrease was despite an increase in lease money as its fleet grew.