American International Group Inc. (AIG), the insurer that repaid a U.S. bailout in 2012, posted fourth-quarter profit that beat analysts’ estimates as the company lifted its dividend and authorized $1 billion of share buybacks.
Net income was $1.98 billion, or $1.34 a share, compared with a loss of $3.96 billion a year earlier that was fueled by costs tied to superstorm Sandy and the planned sale of a plane-leasing unit, New York-based AIG said today in a statement. Operating profit, which excludes some investing results, was $1.15 a share, exceeding the 97-cent average estimate of 23 analysts surveyed by Bloomberg.
Chief Executive Officer Robert Benmosche, 69, is seeking to improve underwriting results at the property-casualty operation that is the core of the company after he sold non-U.S. life units to help repay the rescue. He told staff today that he was cutting 3 percent of the company’s workforce. Investments benefited in the fourth quarter from a stock-market rally and higher bond yields than a year earlier.
“The investment environment is improving gradually for them,” Charles Sebaski, an analyst at BMO Capital Markets, said in an interview before results were announced. He rates AIG the equivalent of a buy.
The quarterly dividend was lifted 25 percent to 12.5 cents a share. It was expected to rise to 15 cents according to the Bloomberg dividend forecast. AIG restored a payout last year, the insurer’s first since the company almost collapsed in 2008. The buyback announced today adds to about $400 million left under a $1 billion repurchase authorized last year.
The shares gained 1 percent to $50.08 at 5:03 p.m. in New York in extended trading. AIG advanced 28 percent in the past 12 months through the close of regular trading.
The insurer expects to eliminate about 1,500 jobs, said a person familiar with the matter, who asked not to be identified because the figure isn’t public. The company recorded $265 million of pretax severance costs in the quarter as it targeted reductions at the property-casualty unit led by Peter Hancock.
Operating profit at the property-casualty unit was $1.09 billion, compared with a loss of $944 million a year earlier. AIG paid out $1.04 in claims and expenses for each premium dollar it took in at the unit, down from costs of $1.25 a year earlier. Excluding catastrophes and claims in prior periods, the figure worsened to $1.02 from $1.01 a year earlier.
Policy sales to consumers declined about 6 percent to $3.19 billion, while sales to commercial clients increased by 9.8 percent to $4.84 billion. AIG insures commercial property, corporate boards, airplanes and hospitals. It offers personal coverage in lines from golfing insurance to home policies.
Hedge funds generated $275 million at the life unit, more than double the year-earlier figure. At the property-casualty business, the funds added $172 million, about triple the contribution in 2012. Private equity investments added $131 million to P&C profit and $153 million at the life unit.
The U.S. life and retirement unit posted operating profit of $1.41 billion, a 29 percent increase from a year earlier, as stocks climbed and sales jumped. Premiums, deposits and other considerations rose to $8.04 from $5.22 billion a year earlier, fueled by annuities and mutual funds.
AIG is expanding sales of retirement products as rivals such as MetLife Inc. (MET) and Prudential Financial Inc. scale back from variable annuities. Benmosche’s company said in January it’s rebranding the American General career-agent sales force as AIG Financial Network and adding 600 advisers by 2019.
“We’re going to start hearing more about a growth strategy,” Sebaski said. “The interest-rate environment is trending favorably for the profitability of their products.”
Book value, a measure of assets minus liabilities, rose to $68.62 a share on Dec. 31 from $67.10 three months earlier. Full-year profit climbed to $9.09 billion from $3.44 billion in 2012.
Fourth-quarter operating profit was $48 million at the United Guaranty mortgage insurance unit, compared with a loss of $45 million a year earlier. The business led by Donna DeMaio wrote coverage on $10.9 billion of home loans in the period.
Benmosche struck a deal in December to sell the International Lease Finance Corp. plane business to AerCap Holdings NV for about $5 billion. AIG turned to Schiphol, Netherlands-based AerCap after an earlier agreement fell apart when the would-be buyers failed to deliver funds. Costs tied to that deal were $4.4 billion in the fourth quarter of 2012.
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