American International Group, Inc. (AIG) Earnings: Losses Hide Real Growth

Page 1 of 2

The analysts got it right. Predicting that insurer American International Group, Inc. (NYSE:AIG) would report a loss for the fourth quarter 2012 was correct, though it only covers one aspect of the company’s operations. When we dig a little deeper, it becomes clear that AIG has been improving its business in various ways that will allow it to continue growing and post profits down the line.

American International Group Inc (NYSE:AIG)Devil’s in the details
If we focus on the two main components that contributed to AIG’s fourth-quarter loss, it’s apparent that these one-time items do not reflect problems in the fundamentals of the insurer’s operations. A $4.4 billion loss from the sale of its aircraft leasing business and a $1.3 billion after-tax loss from paid claims related to Hurricane Sandy were the main factors leading to AIG’s $4 billion loss for the quarter.

Hurricane Sandy took a toll on most insurers, so AIG has plenty of company:

Insurer Reduction in Profits
AIG 348%
The Allstate CorporationĀ (NYSE:ALL) 45%
The Progressive CorporationĀ (NYSE:PGR) 3%
Travelers Companies IncĀ (NYSE:TRV) 52%

Sources: Company earnings releases and earnings reports.

While the effect of Sandy on AIG may seem extreme compared to the other insurers, keep in mind that AIG is the No. 5 property and casualty insurer in the country, only below Allstate, which is ranked No. 4 based on premiums written. In the past five years, Allstate had taken steps to reduce its exposure to states along the east coast, reducing Sandy’s impact on its financial results.

What’s actually going on
Despite Sandy, AIG’s accident year loss ratio continues to decline, down to 63.3% from 69.3% in 2011. This ratio shows the company’s yearly exposure to claims losses based on its earned premiums during that same time frame. And though AIG’s P&C net premiums written were essentially flat year over year, increased rates have helped it mitigate its losses. Commercial rates are up 6% since 2011, with the U.S. up 8.6%. Property rates alone have increased 14.6% since 2011. AIG’s consumer insurance segment has also grown, now accounting for 41% of the company’s P&C net premiums written — showing an increased focus on improving development across business segments.

Though its P&C business produced losses in the fourth quarter, its life and retirement service boosted operations. Increases across all types of assets under management lead to a 13% increase in total AUMs since 2011. The L&R segment has also enjoyed a 50% increase in variable annuity sales during the year.

AIG’s mortgage guaranty business is also picking up speed, though increased foreclosure timelines and changes to the ultimate cure rate caused a loss during the quarter. The delinquency rate for guaranteed mortgages covered by AIG has steadily been declining, and was down 5.1% compared to 2011. New insurance written in the mortgage guaranty segment was helped by increased mortgage origination during the quarter, jumping 63% year over year.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!