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AIG Profit Climbs 27% to $2.33 Billion on Investments

American International Group (AIG), right, is reflected in a neighboring building in New York. Photographer: Daniel Acker/Bloomberg

American International Group Inc., the insurer majority-owned by the U.S. Treasury Department, said profit increased 27 percent on investments and improvements at its property-casualty unit.

Net income rose to $2.33 billion, or $1.33 a share, from $1.84 billion, or $1, a year earlier, the New York-based insurer said today in a statement. 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.

Chief Executive Officer Robert Benmosche, 68, is counting on growth at AIG’s Chartis property-casualty and SunAmerica life insurance operations to attract private capital as the Treasury reduces its stake. 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.

“Investors want to see that there’s some real tangible evidence, not in any single quarter, but over time, that Chartis profitability is improving,” John Nadel, an analyst at Sterne Agee & Leach Inc., said by phone before results were announced. “For the stock to be successful, it’s going to have to transition from a sale of non-core assets, capital-management story into a fundamental insurance-profitability-improvement story.”

Book value, a measure of assets minus liabilities, rose to $60.58 per share on June 30 from $57.68 three months earlier. The stock climbed 21 cents to $31.05 at 5:08 p.m. in extended trading in New York.

Chartis, SunAmerica

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

Policy sales at Chartis, which insures commercial property, corporate boards and airplanes, fell about 1 percent to $9.1 billion from a year earlier. Hancock has been increasing the focus in emerging markets and reducing business in areas that require the company to hold large amounts of capital as he seeks to improve returns.

AIG’s SunAmerica U.S. life insurance and retirement services division, led by CEO Jay Wintrob, reported pretax profit of $777 million, compared with $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.

Bond Gains

Net unrealized gains on bonds available for sale widened to $18.2 billion from $16.2 billion three months earlier, led by corporate debt. The figures, reflecting market fluctuations that aren’t counted toward earnings, are monitored by investors and rating firms as a gauge of financial strength.

Total 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. cost $493 million as the Hong Kong-based insurer’s shares declined.

So-called alternative investments generated income of $289 million, compared with a $503 million profit a year earlier, AIG said in a supplemental filing. Income from private equity fell by 24 percent to $325 million. Hedge-funds lost $36 million, compared with a profit of $77 million a year earlier. Returns for hedge fund and private equity investments are reported on a one month and one-quarter lag, according to the document.

Mortgage Insurance

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

AIG’s mortgage insurer, United Guaranty, reported operating income of $43 million compared with $12 million a year earlier as new delinquencies fell. The unit provides insight into housing and the economy, Benmosche has said.

International Lease Finance Corp., AIG’s plane-leasing business, contributed $88 million to operating income, compared with $86 million a year earlier. AIG said in September that it plans to sell more than 20 percent of the subsidiary in an initial public offering and divest most of the unit over time.

AIG named Laurette T. Koellner in June to oversee the unit’s CEO, Henri Courpron, after he was investigated over a relationship with an employee. AIG said at the time that Courpron’s conduct was “contrary to AIG’s expectations of its officers.”

Treasury Stake

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 Nadel 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.

The first two offerings were priced at $29 a share, and the third at $30.50. The government needs to average about $28.72 over all share sales to break even on its investment. The shares have gained about 33 percent this year.

AIG had received about $6 billion as of July 17 from auctions of assets by the Maiden Lane III vehicle created in 2008 to aid in its rescue, the insurer said in a statement that day. Proceeds first repaid 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.

AIG agreed this week to buy a broker-dealer unit from Hartford Financial Services Group Inc. to expand its investment-advising business. The insurer is planning to restore the AIG brand to its life insurance and property-casualty units this year, Benmosche said in June.

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