AIG beats estimates, property and casualty business shines

Thu May 2, 2013 6:58pm EDT
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By Lauren Tara LaCapra

(Reuters) - American International Group Inc's (AIG.N: Quote) property and casualty business booked its first underwriting profit in two and a half years during the first quarter, as the insurer wrote more premiums at higher prices and reported lower losses.

The long-awaited turnaround in AIG's property and casualty business helped the company beat analysts' quarterly profit expectations on Thursday, sending its shares up 3 percent in after-hours trading.

The unit reported a combined ratio of 97.3 percent last quarter, the first time that ratio has dropped below 100 since the third quarter of 2010. A combined ratio below 100 indicates an underwriting profit, meaning an insurer is receiving more in premiums than it is paying out in claims.

"The important thing for this quarter is that the combined ratio improved," said Josh Stirling, an insurance analyst with Bernstein Research. "That's the thing people will focus on: they actually made money."

Insurers have had trouble raising prices in the property and casualty business for some time. AIG has not reported an annual underwriting profit there since 2007, but the first quarter seems to have been a turning point. Travelers Companies Inc (TRV.N: Quote), Chubb Corp (CB.N: Quote) and ACE Ltd ACE.N also beat earnings expectations last month, citing higher pricing.

AIG's property and casualty unit reported operating income of $1.6 billion in the first quarter, up from $1 billion a year earlier. Its first-quarter, property-and-casualty underwriting income of $231 million compares with a $180 million underwriting loss in the same period a year ago.

AIG's life insurance business also reported some improvement, with higher returns on alternative assets and gains on the value of securities held in its investment portfolio. Its operating income rose to $1.4 billion from $1.3 billion a year ago. But like other life insurers, the business is still navigating a low interest-rate environment that hurts interest income from bonds and makes it difficult to sell fixed annuities.

Overall, AIG's profit fell 35 percent to $1.98 billion, or $1.34 per share, from $3.05 billion, or $1.71 per share a year earlier. On an operating basis, AIG earned $1.34 per share, compared with an average analyst estimate of 87 cents per share, according to Thomson Reuters I/B/E/S.   Continued...

The American International Group, Inc. (AIG) stock ticker is seen on a monitor as traders work on the floor of the New York Stock Exchange after the opening bell February 11, 2013. REUTERS/Brendan McDermid