One of the biggest insurance companies on the market, American International Group Inc (NYSE:AIG), has recently reported a loss of nearly $4 billion in its fourth quarter earnings results, due to Hurricane Sandy and the sale of its airplane leasing business unit. In February, AIG has fallen from $39.45 to $37 per share. However, in the past 12 months, its share price has advanced by more than 29%. Is AIG a long term buy after its fourth quarter earnings results?
In the fourth quarter of 2012, American International Group Inc (NYSE:AIG)’s net loss was $4 billion, or $2.68 per share, compared with net profit of $21.5 billion, or $11.31 per share, in the fourth quarter last year. For the full year 2012, the net income came in at $3.4 billion, or $2.04 per share, just less than a fifth of the 2011 net income at $20.6 billion, or about $11 per share.
The significant reduction in AIG’s net income in the fourth quarter and full year 2012 was due to two main reasons. First, AIG booked around $2 billion pre-tax catastrophe losses from Hurricane Sandy. Second, the net loss on the sale of International Lease Finance Corporation (IFLC) was around $4.4 billion. However, its operating income has improved significantly compared to 2011. Its Insurance operating income has grown from $4.4 billion in 2011 to nearly $6 billion in 2012, while the change in fair value of AIA and ML III has increased to $2 billion and nearly $2.9 billion, respectively. Thus, within a year, the after-tax operating income has more than tripled from $2 billion to $6.6 billion.
At the end of 2012, American International Group Inc (NYSE:AIG) agreed to sell 90% of its stake in aircraft leasing business to a Chinese consortium for as much as $4.8 billion. AIG bought IFLC in 1990 as it thought that the long life of aircraft assets could be matched the maturities of its life-insurance policies. AIG was one of the big financial giants that received a $182 billion bailout from the US government. Now, the $182 billion has been fully repaid, with the government realizing a profit of nearly $22.7 billion. AIG has been quite active in divesting its non-core businesses. In addition to the IFLC sale, the insurer has raised nearly $6.5 billion by selling the Asian life insurer AIA. Indeed, the divestiture of its non-core businesses will help AIG to regain its focus on its core global insurance businesses.