American International Group Inc. (AIG - Analyst Report) reported third-quarter 2013 operating earnings per share of 96 cents, comfortably beating the Zacks Consensus Estimate of 93 cents. However, results lagged the year-ago quarter figure of 99 cents per share. Subsequently, operating net income tumbled 12.3% year over year to $1.42 billion.
On a GAAP basis, including extraordinary items, AIG reported a quarterly net income of $2.17 billion or $1.46 per share as compared with $1.86 billion or $1.13 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 $857 million.
Total revenue plunged 11.3% year over year to $14.83 billion, but topped the Zacks Consensus Estimate of $10.1 billion. Meanwhile, total benefits, claims and expenses edged down 3.7% to $13.65 billion.
AIG Property Casualty (P&C) – conducted through Chartis and its sub-segments: Commercial & Consumer Insurance – reported pre-tax income of $1.03 billion, up 8.4% from $949 million in the year-ago quarter. The upside was a result of lower claims, acquisition and operating expenses that was partially offset by lower premiums earned. Underwriting loss shrank to $135 million against $441 million in the year-ago quarter.
Meanwhile, investment income dipped 3.9% to $1.18 billion. Net premiums written inched down 0.6% year over year to $8.66 billion.
Both the commercial and consumer insurance segments reported higher premiums on account of high value business mix as well as enhanced risk selection and pricing initiatives. While catastrophe losses of $222 million reduced 14.9% year-over-year, combined ratio improved to 101.6% from 105.0% in the year-ago quarter.
Reported pre-tax income at AIG Life and Retirement (conducted through SunAmerica) escalated 39.6% year over year to $1.24 billion based on higher premiums and policy fees as well as higher income across Retail and Institutional segments. Additionally, AUM rose 10% year over year to $304.4 billion as of Sep 30, 2013 driven by positive net flows.
Additionally, premiums, deposits and other considerations spiked 76% year over year to $8.42 billion. A significant surge in individual variable and fixed annuities as well as retail mutual funds was witnessed due to effective spread management.
Other Operations reported operating loss of $583 million versus income of $851 million in the year-ago period, primarily due to decline in net credit and unrealized market valuations.
Within this, Mortgage Guaranty – conducted through United Guaranty Corporation (UGC) – recorded an operating income of $43 million, substantially higher than $3 million in the year-ago quarter, driven by increased mortgage originations as well as new and expanded distribution channels. Consequently, net premiums written rose 24% year over year to $272 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 $110 million compared with $428 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 mere $29 million, significantly deteriorating from $190 million in the year-ago quarter.
At the end of Sep 2013, total investments stood at $358.3 billion, down from $375.8 billion at 2012-end. Total cash increased to $2.06 billion from $1.15 billion at 2012-end. Meanwhile long-term debt declined to $42.2 billion from $48.5 billion at 2012-end based on effective liability management. This also improved the total debt-to-capital ratio to 17.6% from 20.5% at 2012-end.
Shareholder equity totaled $98.8 billion, up from $98.0 billion at the end of 2012, while total assets decreased to $540.7 billion from $548.6 billion at 2012-end.
At the end of Sep 2013, AIG’s book value per common share, including accumulated other comprehensive income, fell 2.6% year over year to $67.10. As well, operating ROE dipped to 6.2% from 7.0% in the year-ago period.
Capital Deployment Update
During the reported quarter, AIG bought back about 4.0 million shares for $192 million. In Aug 2013, the board had authorized a share repurchase program worth $1.0 billion, which will be implemented gradually.
Additionally, the board of AIG announced a regular quarterly dividend of 10 cents per share, payable on Dec 19, 2013, to shareholders of record as on Dec 5, 2013.
In Aug 2013, AIG had initiated a regular quarterly dividend of 10 cents per share, which was paid 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.
Along with AIG, MetLife Inc. (MET - Analyst Report) , Cigna Corp. (CI - Analyst Report) and Assurant Inc. (AIZ - Analyst Report) carry a Zacks Rank #2 (Buy).