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 Corporation (NYSE:ALL) 45%
The Progressive Corporation (NYSE:PGR) 3%
Travelers Companies Inc (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
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

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!