American International Group, Inc. reported net income attributable to AIG of $2.3 billion and after-tax operating income of $1.9 billion for the quarter ended June 30, compared to net income of $1.8 billion and after-tax operating income of $1.2 billion for the second quarter of 2011.
In a release on August 2, the Company noted that diluted earnings per share and after-tax operating income per share were $1.33 and $1.06, respectively, for the second quarter of 2012, compared with diluted earnings per share and after-tax operating income per share of $1.00 and $0.68, respectively, for the second quarter of 2011.
"AIG's insurance operations and aircraft leasing business posted solid profits this quarter," said Robert H. Benmosche, AIG President and Chief Executive Officer. "The performance of our businesses and our stock price enabled the U.S. government to continue to profitably reduce its outstanding assistance to AIG, which includes the U.S. Department of the Treasury's$5.7 billion AIG equity offering in May 2012. The Federal Reserve Bank of New York's Maiden Lane III loan was also paid in full during the quarter.
"We are proud of what we have accomplished and believe we are close to achieving our goal of returning to America all that it provided to AIG during the crisis, plus a profit. Every day, the people of AIG continue to make significant progress in restoring our reputation in the communities we serve; respect for the AIG name has endured among our partners and customers. This fall, our property casualty insurance operations will return to the AIG name with Chartis renamed AIG. In addition, the SunAmerica Financial Group segment will be renamed AIG Life and Retirement.
"At Chartis, second quarter results demonstrated the continued progress in strategic initiatives to improve the mix of business, loss ratio, and risk selection, all of which ultimately increases the intrinsic value of our global franchise. SunAmerica Financial Group continues to benefit from disciplined pricing of innovative products that are attractive to both consumers and our distribution partners. United Guaranty made a profit and is progressively becoming a choice mortgage insurer for lenders to highly qualified borrowers because of our risk-based pricing strategy. ILFC remains highly competitive."
Benmosche concluded, "A rejuvenated and refocused AIG enables us to more fully integrate our global insurance operations, while continuing to build on our successes and respond to market and customer needs."
Capital Management and Other Significant Developments
-Book value per common share increased 5 percent during the second quarter of 2012 to $60.58.
-In May 2012, the U.S. Department of the Treasury (the U.S. Treasury) completed a registered public offering of approximately 189 million shares of AIG common stock, par value $2.50 per share (AIG Common Stock). The U.S. Treasury's proceeds from the sale were approximately $5.7 billion. AIG purchased approximately 66 million shares of AIG Common Stock in the offering at the public offering price of $30.50 per share for an aggregate purchase amount of approximately $2.0 billion.
-In June 2012, as a result of completed auctions by the Federal Reserve Bank of New York (the FRBNY) of certain assets of Maiden Lane III (ML III), the outstanding loan by the FRBNY to ML III was fully repaid. In July 2012, AIG's $5.0 billion equity interest in ML III was fully repaid along with contractual and additional distributions of $1.1 billion. AIG will continue to receive 33 percent of proceeds generated by future sales of ML III assets.
-As of June 30, the FRBNY has realized $12.7 billion of profits, interest, and fees. The U.S. Treasury, while selling approximately $17.5 billion of AIG shares above the $28.73 breakeven price, has applied all receipts to date to the total TARP principal. For the first six months of 2012, excluding profits, the U.S. government has been repaid approximately $35.6 billion.
-During the second quarter of 2012, AIG issued $1.5 billion of senior unsecured notes and ILFC raised $753 million in secured debt to refinance existing secured debt and to purchase aircraft.
-Dividends and note repayments from operating companies totaled $1.3 billion in the second quarter of 2012 and $3.9 billion year-to- date.
CHARTIS
Chartis reported operating income of $936 million in the second quarter of 2012, compared to operating income of $783 million in the second quarter of 2011. During the second quarter, Chartis continued to demonstrate progress toward improving its business portfolio and maintaining its capital strength. Chartis benefited from growth in higher value lines of business and geographies and improving pricing trends. Second quarter 2012 results included catastrophe losses of $328 million and net prior year adverse development of $117 million, which was partially offset by a favorable change in net reserve discount of $94 million. As part of AIG's ongoing focus on capital management, Chartis paid $519 million in cash dividends to AIG Parent during the second quarter of 2012.
The second quarter 2012 combined ratio was 102.4, compared to 104.0 in the second quarter of 2011. The second quarter 2012 accident year combined ratio, excluding catastrophes, was 98.3, compared to 97.7 in the second quarter of 2011. Improvement in the loss ratio due to lower catastrophe losses, a shift to higher value business, pricing improvements, and risk selection was partially offset by higher expenses. The second quarter 2012 expense ratio was 33.5, a 3.5 point increase over the second quarter of 2011. Higher acquisition costs related to changes in business mix toward more profitable lines and increased direct marketing efforts contributed approximately 1.4 points to the expense ratio increase. The remaining increase was primarily attributable to strategic investments in systems and talent, which AIG expects will yield greater efficiencies in the future.
Second quarter 2012 net premiums written of $9.1 billion decreased 0.8 percent compared to the second quarter of 2011, or 0.1 percent, excluding the effect of foreign currency exchange rates. Commercial Insurance premiums in original currencies decreased 2.1 percent compared to the second quarter of 2011. The continued restructuring of loss sensitive businesses to improve capital efficiency contributed 1.3 percentage points to the decline. The remainder of the decrease was primarily driven by initiatives to improve risk selection, particularly in the casualty line of business in the United States. Chartis continued to expand its Commercial Insurance business in growth economy nations, consistent with its strategic objectives. Consumer Insurance premiums in original currencies increased 3.4 percent, driven by growth in both of its major lines of business, as well as increased penetration in the growth economy nations and other international markets. Consumer Insurance also continued to emphasize direct marketing as part of its multiple distribution channel strategy.
Commercial Insurance reported second quarter 2012 operating income of $594 million and a combined ratio of 102.3, compared to operating income of $629 million and a combined ratio of 103.4 in the second quarter of 2011. The accident year combined ratio, excluding catastrophes, was 96.7, compared to 95.4 in the second quarter of 2011. Improvement in the loss ratio from lower catastrophe losses, the shift to higher value business, price improvements, and risk selection was partially offset by higher expenses. The second quarter 2012 expense ratio was 28.5, a 5.2 point increase over the second quarter of 2011. Higher acquisition costs due primarily to changes in Commercial Insurance's business mix contributed approximately 3.1 points to the expense ratio increase. The remaining increase was largely related to strategic investments in talent.
Consumer Insurance reported second quarter 2012 operating income of $192 million and a combined ratio of 97.7, compared to operating income of $59 million and a combined ratio of 100.9 in the second quarter of 2011. The accident year combined ratio, excluding catastrophes, was 97.6, compared to 98.0 in the second quarter of 2011. Improvement in the loss ratio was driven by lower catastrophe losses, the shift to higher value business, price improvements, and risk selection. The second quarter 2012 expense ratio was 38.5, a 0.4 point decrease from the second quarter of 2011.
SUNAMERICA FINANCIAL GROUP
SunAmerica Financial Group reported operating income of $933 million in the second quarter of 2012, compared to operating income of $723 million in the second quarter of 2011. Second quarter 2012 results were positively affected by base spread improvement due to cash redeployment in 2011 and disciplined management of interest crediting rates, partially offset by lower income on alternative investments and lower call and tender income. Additionally, second quarter 2011 results included a fair value loss on Maiden Lane II and an increase in estimated reserves of $100 million for death claims.
Net investment income in the second quarter of 2012 was $2.5 billion, essentially flat from the second quarter of 2011. The second quarter 2012 base investment yield was 5.50 percent, compared to 5.41 percent in the second quarter of 2011, reflecting the redeployment of excess cash during 2011. This yield improvement, combined with SunAmerica's disciplined management of interest crediting rates, resulted in improved base net investment spreads for group retirement products and individual fixed annuities.
Premiums, deposits, and other considerations totaled $5.4 billion in the second quarter of 2012, compared to $6.3 billion in the second quarter of 2011, as individual fixed annuity deposits declined substantially due to the current low interest rate environment. Individual variable annuities and retail mutual funds showed significant growth over the second quarter of 2011 as sales of these products are less sensitive to low interest rates. Group retirement products increased modestly compared to the second quarter of 2011, primarily due to an increase in individual rollover deposits. Individual variable annuity deposits totaled $1.3 billion in the second quarter of 2012, a 51 percent increase over the second quarter of 2011, due to innovative product enhancements and the expansion of the SunAmerica sales organization at a time when several major variable annuity competitors have scaled back their variable annuity business. Retail life insurance sales grew 3 percent during the second quarter of 2012 over the second quarter of 2011 as a result of a continued focus on expanding distribution. Overall, net flows were positive despite a low interest rate environment.
During the second quarter of 2012, SunAmerica provided $807 million of liquidity to AIG Parent through the payment of dividends from insurance subsidiaries, representing an acceleration of previously planned 2012 payments.
Assets under management were $267.8 billion at the end of the second quarter of 2012, compared to $254.9 billion at the end of the second quarter of 2011.
AIRCRAFT LEASING
ILFC reported second quarter 2012 operating income of $88 million, compared to operating income of $86 million in the second quarter of 2011. During the second quarter of 2012, ILFC recorded rental revenues of $1.1 billion, essentially flat from the second quarter of 2011, resulting from the re-lease of older aircraft at lower rates, the impact of aircraft repossessed since December 31, 2011, a limited delivery schedule of new aircraft over the past year, and offset by revenue from AeroTurbine that was acquired by ILFC in the fourth quarter of 2011.
ILFC recognized impairment charges of $75 million in the second quarter of 2012, principally related to aircraft returned early from lessees, one residual value guarantee, and potential sale or part out of aircraft in the fleet.
ILFC raised approximately $753 million in secured debt during the second quarter of 2012 to refinance existing secured debt and to purchase aircraft.
MORTGAGE GUARANTY
United Guaranty Corp. (UGC), AIG's residential mortgage guaranty operations, reported operating income of $43 million for the second quarter of 2012, compared to operating income of $12 million in the second quarter of 2011, reflecting favorable prior year development and a 17 percent decline in new delinquencies.
Net premiums written were $212 million for the second quarter of 2012, compared to $191 million in the second quarter of 2011. Domestic first-lien new insurance written totaled $8.5 billion for the 2012 second quarter compared to $3.1 billion for the same period in 2011, driven primarily by greater market acceptance of UGC's risk evaluation and Performance Premium pricing, higher sales focus in certain channels, and the benefit of fewer competitors in the second half of 2011. Quality remained high, with an average FICO score of 759 and an average loan to value of 91 percent on new business.
First-lien delinquencies fell from 99,000 loans at June 30, 2011 to 71,000 at June 30, primarily as a result of UGC's initiative to contact lenders to file claims on long-delinquent loans, which began in the fourth quarter of 2011. Over the same period, performing loans in UGC's portfolio increased 5 percent to 645,000 loans, reflecting the increasing volume of newly written business.
OTHER OPERATIONS
AIG's Other Operations reported second quarter of 2012 operating income of $664 million, compared to an operating income of $114 million in the second quarter of 2011. Operating income excludes a pretax increase in legal accruals of approximately $719 million, net of tax, associated with various legal contingencies.
The fair value of AIG's AIA ordinary shares decreased $493 million during the second quarter of 2012. The fair value of AIG's interest in ML III increased $1.3 billion during the second quarter of 2012 based in part on sales of ML III assets by the FRBNY.
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07 Aug, 2012
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Source: http://insurancenewsnet.com/article.aspx?id=353082&type=lifehealth
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