AIG Swings to Net Loss on Writedowns, Bailout Repayment

American International Group Inc. swung to a third-quarter loss as the bailed-out insurer wrote down the value of units it is selling and took charges tied to repaying rescue loans.

The net loss of $2.4 billion compares with profit of $455 million a year earlier, the New York-based firm said today in a statement. The adjusted net loss, which excludes some investment results and businesses being sold by the company, was $200 million.

Chief Executive Officer Robert Benmosche is selling assets and planning to raise funds from private investors to repay taxpayers and return the company to independence. AIG expects to retire its Federal Reserve credit line with proceeds from the sale of two non-U.S. life units and convert a $49.1 billion Treasury Department stake into common stock by the end of March.

“They’re getting back to being a normal company,” said Robert Haines, an analyst at CreditSights Inc. in New York. AIG “wants to put on the best face for share sales.”

Profit from insurance operations being kept climbed 6.4 percent to $2.05 billion. The net loss includes more than $4 billion in charges tied to restructuring.

Shareholders’ equity, a measure of assets minus liabilities, rose about 7 percent to $80.8 billion from $75.5 billion on June 30. Realized losses on investments cost the company $661 million, compared with $1.86 billion in the year- earlier period.

Stock Rally

AIG climbed 87 cents to $45.61 at 4:15 p.m. in New York Stock Exchange composite trading. The company has climbed about 52 percent this year, rewarding investors including Bruce Berkowitz, who runs Fairholme Capital Management and manages about a quarter of the publicly traded shares.

The insurer disclosed last month that Benmosche, 66, is undergoing “aggressive” treatment for cancer and that Chairman Steve Miller is available to be interim CEO if needed. AIG’s board had begun succession planning before Benmosche’s diagnosis because the CEO intended to retire in 2012, he told staff.

“I feel great,” Benmosche said in a recording posted on AIG’s website. “I am still jogging about three miles every day or so.”

Property-Casualty

Operating income for AIG’s Chartis property-casualty insurer, which sells coverage of commercial property, corporate boards and airplanes, rose to $1.07 billion from $719 million a year earlier as premium revenue rose. The company earned 0.7 cent per every premium dollar, compared with a loss of 5.2 cents a year earlier, as claims fell and expenses declined.

Sales at Chartis rose 6.5 percent to $8.6 billion. Industrywide, sales increased for the first time in 13 quarters in the period ended June 30, the Property Casualty Insurers Association of America said in a September statement. The slump was fueled by job cuts and plant closings, which had left commercial clients with less to insure.

The company’s U.S. life insurance and retirement services division posted operating income of $978 million, compared with $1.21 billion, on a decline in income from alternative holdings, which include private equity and hedge funds. Premiums and other considerations was little changed at $1.27 billion.

Overall investment income fell 18 percent to $5.23 billion. Alternative assets generated $171 million compared with about $282 million a year earlier. Buyout funds earned $151 million and hedge funds gained $20 million. AIG had $18.5 billion in so- called partnership assets as of Sept. 30, compared with $18.7 billion on June 30.

Plane Leasing

AIG’s plane-leasing business, International Lease Finance Corp., posted a $218 million loss, compared with a gain of $365 million last year, on writedowns of aircraft based on decreased demand from clients. The Los Angeles-based company said in August that it increased liquidity by more than $12.5 billion since March by extending credit agreements, selling aircraft and issuing bonds.

The loss at AIG’s mortgage guarantor, United Guaranty Corp., narrowed to $124 million from $461 million a year earlier. The unit had more than $4 billion in losses in the three years through Dec. 31.

AIG reaped a combined $36.7 billion by divesting AIA Group Ltd. and American Life Insurance Co., the firm said this week. The company also announced in September a $4.8 billion deal to sell a pair of Japanese units to Prudential Financial Inc.

Taiwan Sale

Benmosche expects to sell a Taiwan unit, Nan Shan Life Insurance Co. within a year, the insurer said today. AIG had said in September it may weigh scaling back operations at Nan Shan after the $2.15 billion deal to sell the unit to Primus Financial Holdings Ltd. China Strategic Holdings Ltd. was rejected by Taiwan regulators.

The third-quarter net loss includes a charges of $1.3 billion tied to the units being sold to Prudential and $1.9 billion at a consumer-lending operation that is being divested. Paying down part of the Federal Reserve credit line contributed to a $1.2 billion accounting charge.

AIG reduced its exposure to debt of six European nations including Greece and Portugal by more than two-thirds through the divestitures of AIA and Alico, the company said today in a regulatory filing. AIG has about $927 million in exposure, compared with about $3.1 billion on Sept. 30.

AIA, which AIG divested last month in a public offering, contributed to the foreign life insurance group’s pretax operating income of $534 million, a 31 percent increase from a year earlier.

AIA, Alico

AIG sold a 67 percent stake in AIA for $20.5 billion. The U.S. will receive proceeds from the IPO and sales of AIG’s remaining holdings in the Hong Kong-based company, meaning taxpayers stand to benefit from a rally in AIA shares.

Alico, which operates in more than 50 nations, had pretax income of $537 million, up 45 percent from a year earlier, AIG said in a regulatory filing. MetLife Inc. paid $16.2 billion in cash and securities on Nov. 1 for Alico.

Unrealized gains on bonds available for sale rose to $18.4 billion from $10.3 billion three months earlier. Gains on corporate debt holdings were $13.8 billion. The figures, reflecting market fluctuations that aren’t counted toward earnings, are monitored by investors and rating firms as a gauge of financial strength.

The insurer’s maximum risk on a book of swaps sold to European banks climbed to $65.5 billion as of Sept. 30, compared with $64.5 billion as of June 30. AIG’s rescue spared European banks from raising as much as $16 billion in capital in late 2008, the Congressional Oversight Panel said in a report in June.

Bailed Out

Treasury, which said it expects to earn a profit on the AIG bailout, will sell its common stock in phases over about two years, a person with direct knowledge of the plan said in September. The government will own 1.66 billion AIG shares after the conversion, or about 92 percent of the firm.

The insurer was first rescued in September 2008 after losses on housing market bets by the Financial Products unit. The rescue was revised four times, swelling to $182.3 billion, to extend more credit and lower the interest charged.

AIG benefited from a gain in the value of mortgage-linked assets turned over to Fed investment vehicles as part of the bailout. The company valued its share in the funds, called Maiden Lane II and Maiden Lane III, at $7.1 billion as of Sept 30, compared with $6.7 billion in the second quarter and $5.3 billion at the end of 2009. The Fed holds a majority stake.

AIG is focusing on U.S. life insurance and global property- casualty coverage. The company, which shrank the derivatives unit, has sold more than 30 businesses or assets since 2008, including a U.S. auto unit, a Russian bank, an Israeli mortgage insurer and its New York headquarters building.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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