AIG Posts $19.8 Billion Profit on Tax Benefit, AIA Stake

American International Group Inc., the bailed-out insurer, said fourth-quarter profit jumped 77 percent, fueled by a tax benefit and an increase in the value of a stake in Asian insurer AIA Group Ltd. The stock climbed after operating profit beat analysts’ estimates.

Net income rose to $19.8 billion, or $10.43 a share, from $11.2 billion, or $16.60, a year earlier, when the insurer booked gains from the sale of businesses, according to a statement today from the New York-based company. Operating income, which excludes some investment results and the tax figure, was 82 cents a share, beating the 59-cent average estimate of 14 analysts surveyed by Bloomberg.

Chief Executive Officer Robert Benmosche, 67, has asked potential investors to focus on property-casualty and life units as he seeks private funds to replace the U.S. Treasury Department’s majority stake. The insurer’s results have been affected by swings in the value of mortgage investments and shares of Hong Kong-based AIA, which climbed 8.7 percent in the fourth quarter. AIG posted a $4.11 billion loss in three months ended Sept. 30.

The volatility “is something we should expect from AIG for a couple of years until they can divest” or wind down some of these assets, Paul Newsome, an analyst with Sandler O’Neill & Partners LP, said in an interview before today’s announcement. “The results will swing back-and-forth.” Newsome has a “hold” rating on the stock.

Book Value

Book value per share, a measure of assets minus liabilities, rose to $55.33 on Dec. 31 from $45.30 three months earlier, on the tax benefit. The stock advanced 6.4 percent to $29.77 in extended trading at 5:52 p.m. in New York.

The insurer climbed 21 percent this year on the New York Stock Exchange, after slumping 52 percent in 2011. The Standard & Poor’s 500 Index has jumped 8.4 percent since Dec. 31 and was little changed in 2011.

AIG posted a tax benefit of about $17.7 billion. Losses at the insurer and its subsidiaries helped rack up more than $25 billion in deferred tax assets at the end of 2010 that can be used to lower obligations to the government. By booking the tax benefit, AIG is calculating it will be profitable enough to use the assets.

Benmosche’s Confidence

“We have a high degree of confidence in our future earnings prospects, which is a critical element in our assessment supporting the release of the deferred tax asset valuation allowance,” Benmosche said in the statement.

Full-year net income of $17.8 billion compares with a $7.8 billion profit in 2010, when the company posted gains on the sale of American Life Insurance Co., two-thirds of AIA and other assets.

Results included a mark-to-market gain on AIA of about $1 billion. AIG retained a stake in the Asian insurer after a 2010 initial public offering of the unit to raise funds to help pay back the U.S. rescue.

Chartis, AIG’s property-casualty division, had operating income of $348 million, compared with a loss of $3.97 billion a year earlier. Benmosche named Peter Hancock to lead the unit in March after it took charges of more than $4 billion in the fourth quarter of 2010 tied to a reserve shortfall.

The unit spent $1.07 for every premium dollar on claims and expenses, compared with spending $1.61 a year earlier. Flooding in Thailand fueled a surge in catastrophe costs to $467 million in the last three months of 2011, compared with $203 million a year earlier. Sales at Chartis, which insures commercial property, corporate boards and planes, rose 3.6 percent to $7.85 billion.

Life Insurance

AIG’s U.S. life insurance and retirement services unit posted operating income of $931 million, compared with a $1.04 billion profit a year earlier, as investment income slipped.

Overall, net investment income fell 16 percent to $4.59 billion on a slump in private-equity and hedge fund holdings. So-called alternative investments generated an $86 million loss, compared with a $650 million profit a year earlier.

Buyout funds earned $10 million and hedge funds lost $96 million in the quarter. AIG had $18.8 billion in alternative funds at the end of last year, compared with $20.1 billion on Sept. 30.

AIG’s mortgage insurer, United Guaranty, reported an operating loss of $23 million in the fourth quarter, compared with operating income of $154 million a year earlier. AIG said this week that Eric Martinez was becoming vice president of global claims, operations and systems at Chartis after serving as CEO of United Guaranty. Kim Garland was named new CEO of the mortgage guarantor.

Plane Leasing

The plane business, International Lease Finance Corp., swung to an operating profit of $119 million from a loss of $606 million a year earlier when the business recorded higher impairment charges. 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 had about 57,000 employees at the end of 2011, down from 63,000 a year earlier. Benmosche sold Japan life insurance units in 2011 to Prudential Financial Inc.

The Treasury reduced its ownership of AIG in May by selling 200 million shares for $29 each in a public offering. The government needs to divest its stake for an average of at least $28.72 a share to recoup its investment.

AIG was rescued in 2008 as bets on the mortgage market soured. The bailout was revised at least four times, swelling to $182.3 billion as the U.S. extended more credit and lowered the interest charged.