AIG Profit Rises 17% to $2.17 Billion on Underwriting

American International Group Inc., the insurer that repaid a U.S. rescue last year, said third-quarter profit climbed 17 percent as underwriting margins improved at the property-casualty business.

Net income rose to $2.17 billion, or $1.46 a share, from $1.86 billion, or $1.13 a year earlier, New York-based AIG said today in a statement. Operating profit, which excludes some investing results, was 96 cents per share, matching the average estimate of 21 analysts surveyed by Bloomberg. The stock fell in extended trading as premium revenue declined at the property-casualty division.

“Our outlook for operating trends in the company’s core insurance businesses is mixed,” Jimmy Bhullar, an analyst at JPMorgan Chase & Co., wrote in a research note before results were announced. “We forecast P&C margins to expand, but at a slower rate.”

AIG, led by Chief Executive Officer Robert Benmosche, is benefiting from rising stock markets and higher bond yields than a year ago. The company ended the $182.3 billion U.S. rescue in December, in part by repurchasing shares. Benmosche, 69, is working to improve margins at the property-casualty unit and expand sales to consumers.

Premium revenue at the property-casualty division fell 3.7 percent to $8.43 billion. At the segment that sells coverage to individuals, the figure slipped 5.8 percent to $3.27 billion.

The shares declined 3.4 percent to $49.90 at 5:55 p.m. in New York, after results were announced. Benmosche’s company had rallied 46 percent this year through today’s close, beating the 23 percent advance of the Standard & Poor’s 500 Index.

Underwriting Loss

While margins improved, AIG still recorded an underwriting loss of $135 million at the property-casualty division, compared with a loss of $441 million a year earlier. The insurer spent $1.02 on claims and expenses for every premium dollar in the period, compared with costs of $1.05 a year earlier.

AIG said in the filing that the International Lease Finance Corp. unit took an impairment charge of about $1.1 billion on its aircraft as higher fuel prices and the success of some competing plane models reduced their value. The impairment had no effect on the insurer’s results because the company booked a loss on plans to sell the unit that was recognized last year, AIG said in the filing.

A group of investors has missed several deadlines to purchase ILFC, after striking a deal last year to pay $4.2 billion for 80 percent of the unit. AIG had previously said it expected the deal to be completed in the second quarter.

Legal Costs

AIG said it added $260 million to reserves for legal costs tied to the financial crisis. The insurer also disclosed a probe by New York regulators about whether units it sold to MetLife Inc. previously operated in the state without a license.

The U.S. life insurance division, run by CEO Jay Wintrob, recorded operating profit of $1.14 billion, up 38 percent from a year earlier, fueled by higher deposits and climbing markets. AIG said higher sales of annuities and mutual funds contributed to an increase in premiums and deposits to $8.42 billion from $4.79 billion a year earlier.

Book value, a measure of assets minus liabilities, rose to $67.10 per share on Sept. 30 from $66.02 three months earlier. Net unrealized gains on bonds available for sale narrowed to $10.8 billion on Sept. 30 from $12.5 billion three months earlier, according to the company’s quarterly report. The figures reflect market fluctuations that aren’t counted toward earnings, and are monitored by investors and ratings firms as a gauge of financial strength.

Investment Portfolio

AIG’s $358.3 billion investment portfolio included $282.8 billion of bonds as of Sept. 3. Most of the securities are classified as available for sale.

Monika Machon was named treasurer, replacing Brian Schreiber, as part of a revamp of investment oversight, AIG said in a separate statement. Schreiber will be deputy chief investment officer, and Geoffrey Cornell was given the same title. Both report to William Dooley, executive vice president for investments. Machon was previously chief investment officer.

At the United Guaranty mortgage insurer, profit rose to $43 million from $3 million a year earlier. The unit led by Donna DeMaio wrote coverage on $14.4 billion of loans in the period. Mortgage guarantors are benefiting as the U.S. real estate market recovers from the financial crisis and the federal government scales back from insuring home loans.

The U.S. Treasury owned as much as 92 percent of AIG after the insurer’s bailout, and was still the biggest holder when the company reported results a year ago. AIG repurchased shares from the U.S. to help end the rescue.

AIG finished divesting Asian life insurer AIA Group Ltd. last year. Hong Kong-based AIA’s market appreciation added $527 million to profit in last year’s third quarter. A Federal Reserve vehicle tied to the rescue contributed $330 million in that period as it was wound down.

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