AIG Jumps on Surprise Operating Profit as Investments Gain

American International Group Inc., the insurer that repaid a U.S. bailout, gained in early trading as fourth-quarter results beat analysts’ estimates after investments drove a surprise operating profit.

AIG jumped 3.8 percent to $38.70 at 7:40 a.m. in New York. Operating profit was 20 cents a share, beating the average estimate for a loss of 8 cents in a Bloomberg survey of 17 analysts. The net loss was $3.96 billion, driven by claims from superstorm Sandy and costs tied to a deal to sell the plane-leasing unit, New York-based AIG said yesterday in a statement.

The operating profit was “driven primarily by better-than-forecasted capital-markets” and other investment results, Randy Binner, an analyst at FBR Capital Markets, said in a note.

Chief Executive Officer Robert Benmosche, 68, has struck deals to sell units including non-U.S. life insurers to simplify the company and help repay the government. He reached an agreement in December to sell at least 80 percent of the International Lease Finance Corp. plane business to a group of Chinese investors.

AIG surged 36 percent in 12 months through yesterday in regular trading as the U.S. sold its stake. Taxpayers owned as much as 92 percent of AIG during a bailout that began in 2008 and swelled to $182.3 billion. AIG sold more than $70 billion of assets such as Asian insurers and a U.S. consumer lender to help repay the rescue, which ended in December.

‘New Era’

“When history is written, we will look back and see that by the end of 2012, a new era for AIG had begun,” Benmosche said in the statement.

Operating profit at the life unit climbed to $1.09 billion from $912 million a year earlier as investment income rose about 15 percent.

So-called alternative investments generated a gain of $617 million, compared with a loss of $86 million a year earlier, AIG said in a supplemental filing. Income from private equity surged to $454 million from $10 million and hedge funds added $163 million, compared with a loss of $96 million a year earlier.

AIG had $18.9 billion of alternative investments as of Dec. 31, down from $19.3 billion on Sept. 30. Returns for hedge-fund and private-equity investments are reported on a one-month and one-quarter lag, respectively.

Net unrealized gains on bonds available for sale widened to $23.8 billion from $23.2 billion three months earlier. The figures, reflecting market fluctuations that aren’t counted toward earnings, are monitored by investors and rating firms as a gauge of financial strength.

Claims Costs

The insurer booked a tax benefit in the year-earlier period, when net income was $21.5 billion. That result was tied to a projection that AIG would generate enough operating profit to use the tax assets, which are linked to prior losses and can limit future payments to the government.

Full-year profit was $3.44 billion, compared with $20.6 billion a year earlier.

The property-casualty unit, led by Peter Hancock, posted a fourth-quarter pretax loss of $983 million, compared with a profit of $817 million a year earlier, as the company faced claims from Sandy. The business that was known as Chartis spent $1.25 on claims and expenses for every premium dollar it collected, compared with spending $1.07 a year earlier.

Sandy cost AIG about $1.3 billion after tax. The storm struck the U.S. Northeast in October and cut profit at insurers including Travelers Cos., Chubb Corp., and Allstate Corp. Travelers, the lone insurer in the Dow Jones Industrial Average, reported $689 million of catastrophe costs in the fourth quarter, led by Sandy.

Premium Revenue

Premium revenue at AIG’s property-casualty unit slipped 3.9 percent to $8.61 billion. Premiums, deposits and other considerations at the life unit fell 11 percent to $5.22 billion from a year earlier on a decline in fixed-annuity deposits, driven by low interest rates.

Book value, a measure of assets minus liabilities, decreased to $66.38 a share as of Dec. 31 from $68.87 three months earlier. There was a $4.4 billion charge tied to discontinued operations, fueled by ILFC, the insurer said. AIG said it was more selective about taking on risk.

The loss at the mortgage-insurance business widened to $45 million from $25 million a year earlier. Longer foreclosure processes in some states pushed he company to increase reserves for losses on first-liens. Mortgage insurers pay lenders when homeowners default and foreclosures fail to recoup costs.

AIG reported having 63,000 employees, compared with 57,000 a year earlier. The increase was mostly the result of a decision to count agents who previously weren’t classified as full-time employees, Jim Ankner, an AIG spokesman, wrote in an e-mail before results were released. Some employees were added as AIG acquired broker-dealer Woodbury Financial Services from Hartford Financial Services Group Inc., Ankner said.

AIG reported a staff of about 116,000 at the end of 2008.

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