AIG Has Third Straight Profit as Chartis, SunAmerica Gain

American International Group Inc. (AIG), the insurer majority-owned by the U.S. government, posted its third straight profitable quarter as results improved at the Chartis property-casualty and SunAmerica life units.

Net income rose 27 percent in the second quarter to $2.33 billion, or $1.33 a share, from $1.84 billion, or $1, a year earlier, the New York-based insurer said yesterday. Operating profit, which excludes some investment results, was $1.06 a share, beating the average estimate of 60 cents in a Bloomberg survey of 20 analysts.

Improving results at Chartis and SunAmerica may help Chief Executive Officer Robert Benmosche, 68, attract private capital as the U.S. Treasury Department reduces its stake. AIG’s strategy of pursuing more- profitable lines of business and reducing risk is paying off, said Josh Stirling, an analyst at Sanford C Bernstein & Co.

“Turnarounds make sense as long as management is committed and actually does the work, and I think they’re showing so far that they’re committed,” he said. “The reason you buy the stock today is because it’s an underpriced option on a Chartis turnaround.”

Chartis, led by CEO Peter Hancock, posted a pretax profit of $961 million, up from $826 million a year earlier. The global property-casualty insurer spent $1.02 for every premium dollar on claims and expenses, compared with $1.04 a year earlier when tornadoes struck Missouri and Alabama.

AIG Advances

AIG had gained 33 percent this year through yesterday, the second-best performance on the 22-company S&P 500 Insurance Index (S5INSU), which had advanced 6.9 percent. The shares added 32 cents to $31.16 yesterday in late trading after results were announced.

Policy sales at Chartis, which insures commercial property, corporate boards and airplanes, fell about 1 percent to $9.1 billion from a year earlier as Hancock worked to reduce business in areas that require the company to hold large amounts of capital and increased the focus in emerging markets.

“It looks like they’re kind of coming back into their own this quarter,” Paul Newsome, an analyst at Sandler O’Neill & Partners LP. said by phone. “You’re not looking for spectacular results, you’re just looking for them to recover.”

Profit at AIG’s SunAmerica U.S. life insurance and retirement services division, led by CEO Jay Wintrob, climbed to $777 million from $766 million a year earlier. Premiums, deposits and other considerations at SunAmerica fell 13 percent to $5.4 billion from a year earlier as fixed-annuity business was hurt by low interest rates.

Brand Returns

The insurer is planning to restore the AIG brand to both Chartis and SunAmerica this year as the firm’s reputation improves, Benmosche said in June.

AIG increased its projected litigation liability by $719 million in the quarter, according to a regulatory filing. The addition is based on “developments in several actions,” the company said, without outlining the cost per case. Jim Ankner, a company spokesman, declined to comment.

Book value, a measure of assets minus liabilities, rose to $60.58 a share on June 30 from $57.68 three months earlier. Net realized capital gains climbed to $397 million from $75 million. The change in the fair value of Maiden Lane contributed $1.31 billion while AIG’s stake in AIA Group Ltd. (1299) cost $493 million as the Hong Kong-based insurer’s shares declined.

“Although Chartis and SunAmerica modestly beat our forecasts, most of AIG’s 2Q12 outperformance again came from outside of core operations,” Meyer Shields, an analyst at Stifel Nicolaus & Co. wrote in a research note.

Asset Auctions

AIG said it’s received $6.1 billion from auctions of assets by the Maiden Lane III vehicle created in 2008 to aid in its rescue, and expects another $1.9 billion in mid-August. Some proceeds went toward repayment of a Fed loan to the vehicle. AIG may use cash from the Maiden Lane III sales to buy back shares from the U.S., Jimmy Bhullar, a JPMorgan Chase & Co. analyst, wrote in a July 10 research note.

The insurer said it purchased $7.1 billion in mortgage- related securities from the Maiden Lane III rescue fund this year as part of a plan to increase investment yields.

The Treasury has sold about $17.5 billion of AIG shares, reducing its stake to 61 percent in three offerings. AIG has bought about $5 billion of its stock in the two sales this year. Analysts including John Nadel of Sterne Agee & Leach Inc. and Jay Gelb at Barclays Plc said the Treasury may announce another share sale in the current quarter. Matt Anderson, a Treasury spokesman, declined to comment before results were released.

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

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