AIG Plunges on ‘Messy’ Results as CEO Retreats From Goals
American International Group Inc. (AIG) posted the biggest decline in the Standard & Poor’s 500 Index after reporting an underwriting loss at its property-casualty unit and saying it may miss some of its 2015 targets.
The insurer dropped $3.37, or 6.5 percent, to $48.28 at 4 p.m. in New York, the steepest fall in a year.
The property-casualty division, AIG’s largest, reported a third-quarter decline in sales late yesterday. The company’s operating return on equity was 6.2 percent, compared with 7 percent a year earlier. Chief Executive Officer Robert Benmosche said on a conference call with analysts today that he would stop providing specifics on progress toward the company’s so-called aspirational goals, such as a 10 percent ROE target for 2015.
Results were “messy and light on earnings,” Randy Binner, an analyst at FBR Capital Markets who has an outperform rating on the stock, said in a note to investors.
Third-quarter net income climbed 17 percent to $2.17 billion at New York-based AIG, which ended a U.S. bailout late last year. The insurer’s stock is up 37 percent this year.
“We are proud of what we’ve accomplished so far, we’re working hard to achieve all those aspirational goals,” Benmosche told Bloomberg Television’s Betty Liu in an interview today. “Our only concern is if we can get there by 2015.”
AIG laid out the aspirational goals in 2011 as the company sought to attract private capital to replace funds the U.S. contributed to rescue the insurer beginning in 2008. The government owned as much as 92 percent of AIG after the bailout.
Increasing per-share earnings “in the mid-teens” each year was among the objectives AIG listed in its filing for the first quarter of 2011. The insurer also said it planned to generate $25 billion to $30 billion of capital for buybacks, dividends, acquisitions and organic growth, and cut general and administrative costs by $1 billion by the end of 2015.
Benmosche said the company decided to limit disclosure about the goals because as 2015 approaches, discussing them requires a higher degree of specificity. He didn’t say which of the objectives AIG may fail to accomplish.
“As we get closer to 2015, we feel that comments going forward are more like guidance rather than a direction that we’re all working towards,” Benmosche said on the conference call with analysts. “You can’t run this business with that degree of accuracy and you all know that.”
MetLife Inc. (MET) said yesterday that it will stop providing annual earnings-per-share forecasts as the insurer seeks to shift investors’ focus to longer-term performance. Ace Ltd. (ACE) also halted the practice of providing such projections to investors.
Investors will probably view AIG’s decision to stop talking about its aspirational goals as a sign that management is becoming less confident in the company’s prospects, Josh Stirling, an analyst at Sanford C. Bernstein & Co., said in a research note today.
“While the rest of the quarter was a mixed bag, appropriate for a still discounted, turnaround company making progress against most areas, this issue will overwhelm most others in the short term,” Stirling wrote.
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