AIG Swings to Profit as Insurers Report Quarterly Results--Update

By Leslie Scism Features Dow Jones Newswires

American International Group Inc. reversed a year-earlier first-quarter loss with better investment returns and cost-cutting, following setbacks that prompted the resignation of Chief Executive Peter Hancock.

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In what could be Mr. Hancock's last full quarter running the global insurance conglomerate, AIG reported net income of $1.19 billion, swinging from a net loss of $183 million in the year-earlier period.

The bottom line included a 28% increase in pretax income in the company's core unit of selling property-and-casualty policies to business customers, but its closely watched underwriting ratios remain off the targets the company is aiming to hit by the end of the year.

The results from AIG come on a busy day for the insurance sector as MetLife Inc., Prudential Financial Inc. and Lincoln National Corp. also reported improved first-quarter operating earnings. The quarter was characterized by solid investment gains and higher fees from equity-based products, buoyed by a surging stock market, partly offset by tough competitive conditions.

AIG didn't give an update on its CEO search in its earnings release but will likely face questions during its conference call with investors and analysts on Thursday morning.

The company said its expense reductions are well ahead of the plan unveiled by Mr. Hancock in January 2016. He laid out a strategy for boosting the company's profitability by narrowing its focus and shedding unprofitable and noncore businesses, to fight off calls by billionaire investors Carl Icahn and John Paulson to split AIG into three separate companies.

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Much of the first-quarter improvement also came from better returns from the slice of AIG's big investment portfolio that it holds in so-called alternative investments, including hedge funds and private equity. Insurers invest premiums from their customers until needed to pay claims, mostly buying high-quality bonds, but big companies like AIG typically take on some potentially higher-returning, riskier holdings. In the year-earlier quarter, dozens of hedge funds in which AIG was then invested posted losses. Since then, AIG has pared its hedge-fund exposure.

Per-share results also were helped as the company bought back $3.6 billion of its own stock in the quarter, followed by an additional $1.1 billion since March 31. AIG said those purchases, along with dividends, mean the company has returned $18.1 billion of capital to shareholders since January 2016, moving it close to a $25 billion two-year target. The company also added $2.5 billion to its buyback authorization on Wednesday.

Mr. Hancock faced restive shareholders almost from the start of his tenure as CEO in late 2014, and last year the company gave representation on its board to the hedge funds of Messrs. Icahn and Paulson. In March, on the heels of disappointing fourth-quarter results, Mr. Hancock agreed to leave, pending the naming of his successor. The Wall Street Journal has reported that former AIG senior executive Brian Duperreault is a leading candidate, though the board also is considering at least one or two other people.

Mr. Hancock's bid to boost profits in the commercial property-casualty unit is up against weak pricing conditions that plague most product lines. Analysts said rates remain flat to negative across much of the industry, with little prospect for rising again barring a massive catastrophe to wipe out part of a record capital base and limit competition. With no major hurricanes or earthquakes in recent years, the industrywide surplus -- essentially assets minus liabilities -- has grown to $700 billion, according to trade group Insurance Information Institute.

Premium volume in AIG's commercial property-casualty unit declined 17%, to $3.63 billion in the quarter, with much of that a deliberate effort to shrink as the company opted not to renew contracts that didn't clear profitability hurdles.

In contrast to many other U.S. property and casualty insurers, AIG had lower-than-expected catastrophe-claims costs this quarter. Hail, tornadoes and an ice storm turned the first three months of 2017 into the most expensive first quarter in more than 20 years for many insurers. But some with large international footprints, including Chubb Ltd., have reported lower year-over-year catastrophe costs, as catastrophes outside the U.S. were below historical averages.

AIG's operating income of $1.37 billion amounted to $1.36 a share. This was up from $765 million, or 64 cents a share, in the year-earlier period. Analysts were expecting $1.08 a share. Operating income excludes realized gains and losses and some other items judged nonrecurring in nature.

Meanwhile, in what's likely to be one of its last reports as the U.S.'s biggest life insurer by assets, MetLife reported stronger-than-expected operating income, up 16% to $1.55 billion. On a per-share basis, operating income rose 18% to $1.41 a share. Catastrophe costs in its car- and home-insurance business cut into results, while lower expenses and 29% sales growth in its group-benefits unit helped to lift them. Investment income increased 14% to $5.2 billion.

The company's net income, meanwhile, declined 63% to $820 million from $2.2 billion, hurt by $602 million in net losses in its hedging program. The insurer said the losses reflected changes in rising equity markets and interest rates as well as costs associated with repositioning its hedging strategies.

In the next few months, MetLife aims to complete a spinoff of most of its U.S. retail life-insurance operations. Long the core of the nearly 150-year-old company, the assets are being divested because MetLife believes they will be slower growing and more capital intensive than parts it is retaining.

The divestiture will leave MetLife focused on insurance sold to employers for their group-benefits programs, pension and retirement products and the large overseas unit.

Prudential -- poised to take the life-insurance crown when the MetLife spinoff takes place -- said its operating earnings increased more than expected, amid what the company called record-high account values in retirement and solid international sales growth.

Prudential's big businesses include an asset-management unit with many of the nation's biggest pension plans as clients. It focuses heavily on retirement-related products and services.

And smaller peer Lincoln National reported higher operating income that handily beat Wall Street estimates amid growth across all segments, especially annuities and life insurance.

Anne Steele contributed to this article.

Write to Leslie Scism at leslie.scism@wsj.com

(END) Dow Jones Newswires

May 03, 2017 17:09 ET (21:09 GMT)