American International Group Inc. (AIG - Analyst Report) reported second-quarter 2013 operating earnings per share of $1.12, significantly beating the Zacks Consensus Estimate of 85 cents and the year-ago quarter figure of 96 cents per share, primarily based on low share count. However, operating net income dipped 1.4% year over year to $1.66 billion.
On a GAAP basis, including extraordinary items, AIG reported a quarterly net income of $2.73 billion or $1.85 per share as compared with $2.33 billion or $1.33 per share in the year-ago quarter. The year-ago results include pre-tax income from the fair value of the AIA Group Ltd. (AIA) and Maiden III, totaling $813 million.
Total revenue increased 6.7% year over year to $17.32 billion, and also topped the Zacks Consensus Estimate of $12.51 billion. Meanwhile, total benefits, claims and expenses edged down 2.6% to $14.17 billion.
AIG Property Casualty (P&C) – conducted through Chartis and its sub-segments: Commercial & Consumer Insurance – reported operating income of $1.17 billion, up 21.5% from $961 million in the year-ago quarter. The upside was a result of lower claims, acquisition and operating expenses that was more than offset by lower premiums earned. This led to higher underwriting loss of $225 million against $217 million in the year-ago quarter.
Meanwhile, investment income increased 13.6% to $1.31 billion. Net premiums written inched up 1.8% year over year to $9.26 billion.
Both the commercial and consumer insurance segments reported operating income on account of high value business mix as well as enhanced risk selection and pricing initiatives. Excluding catastrophe losses of $316 million and adverse reserve development, combined ratio improved to 96.5% from 98.3% in the year-ago quarter.
Operating income at AIG Life and Retirement (conducted through SunAmerica) escalated 121.1% year over year to $1.72 billion based on higher premiums and policy fees as well as net investment income, partially offset by higher slightly higher expenses. Additionally, AUM rose 10% year over year to $294 billion as of Jun 30, 2013 driven by positive net flows.
Additionally, premiums, deposits and other considerations jumped 24% year over year to $6.8 billion. A significant surge in individual variable annuities and retail mutual funds was witnessed due to effective spread management. Meanwhile, retail and institutional segments recorded modest improvement.
Other Operations reported operating income of $199 million versus $682 million in the year-ago period. Within this, Mortgage Guaranty – conducted through United Guaranty Corporation (UGC) – recorded an operating income of $73 million, higher than $43 million in the year-ago quarter, driven by increased mortgage originations as well as new and expanded distribution channels. Consequently, net premiums written rose 29.7% year over year to $275 million.
In addition, AIG’s Direct Investment book (DIB), comprising the Matched Investment Program (MIP) and the non-derivative assets and liabilities of the previous AIG Financial Products Corp. (AIGFP) portfolios, recorded operating income of $519 million compared with $434 million in the year-ago period.
Global Capital Markets, consisting of AIG Markets Inc. and the remaining AIGFP derivatives portfolio, recorded an operating income of $175 million, significantly improving from a loss of $25 million in the year-ago quarter.
Meanwhile, the Aircraft Leasing business, conducted through ILFC, has been declared a discontinued operation following the decision to sell 90% of ILFC in Dec 2012, to a Chinese consortium for about $4.23 billion. The deal awaits regulatory approvals and was scheduled to culminate by Jul 31, 2013. However, the buyers failed to meet the third deadline.
At the end of Jun 2013, total investments stood at $358.2 billion, down from $375.8 billion at 2012-end. Total cash increased to $1.76 billion from $1.15 billion at 2012-end. Meanwhile long-term debt declined to $42.6 billion from $48.5 billion at 2012-end based on effective liability management. This also improved the total debt-to-capital ratio to 17.7% from 20.5% at 2012-end.
Shareholder equity totaled $97.5 billion, down from $98.0 billion at the end of 2012, while total assets decreased to $537.4 billion from $548.6 billion at 2012-end.
At the end of Jun 2013, AIG’s book value per common share, including accumulated other comprehensive income, dipped 2% year over year to $66.02. However, operating ROE improved to 7.4% from 7.0% in the year-ago period.
Capital Deployment Update
Concurrently, the board authorized a share repurchase program worth $1.0 billion, which will be implemented gradually.
Additionally, AIG initiated a regular quarterly dividend of 10 cents per share, payable on Sep 26, 2013 to shareholders of record as on Sep 12, 2013. This marks the first regular dividend since 2008. The last quarterly dividend was paid for the third quarter of 2008.
While AIG carries a Zacks Rank #3 (Hold), its peers MetLife Inc. (MET - Analyst Report), Cigna Corp. (CI - Analyst Report) and Assured Guaranty Ltd. carry a Zacks Rank #2 (Buy).