Benmosche: Buying Back Stock From Treasury Positions AIG for Future

The president and chief executive officer of American International Group said his company's purchase of AIG stock from the government will reduce the overhang on the company and help its financial future.

"Conventional wisdom has been as long as Treasury has a large position, $29 is probably the ceiling for the stock," said Robert Benmosche in an earnings conference call. "We believe that earnings will actually be what determines the value of the stock.

In March, AIG purchased 103 million shares of AIG common stock from the U.S. Treasury for about $3 billion. The Treasury offered a total of 207 million shares for sale for aggregate proceeds of about $6 billion (Best's News Service, March 8, 2012). The transaction reduced the government's ownership in AIG to about 70%, the company said.

"The most important message that I think comes out of the first quarter of 2012 is the strong organic growth of this company and the strength of our insurance businesses," Benmosche said.

AIG reported a first-quarter net income of $3.2 billion, more than doubled from the previous first quarter. Chartis, the insurance arm of AIG, reported an operating income of $1.04 billion, compared with an operating loss of $424 million in the prior-year quarter. Chartis also saw its underwriting loss shrink drastically to finish this year's first quarter at a $180 million loss, compared with a $1.6 billion loss a year ago. Chartis posted a combined ratio of 102.1 for the quarter, which is 16.5 points better than the prior-year quarter.

"If you look at Chartis, you see loss ratios improving, you see rate coming in and we see a better mix of our business, but keep in mind … that it takes time to see these improvements emerge in our financials," Benmosche said.

AIG executives said their first-quarter catastrophe losses were very low, tallying $80 million. Executives said Chartis continues to expand in growth economy nations, without being specific where. International business represented 11% of total first-quarter 2012 net premiums, up 1% from the previous quarter.

Rate in the United States and Canada went up about 5% across Chartis' entire book of business. U.S. property and workers' compensation had the biggest pricing gains. The property line went up about 11%, while workers' comp went up about 7%. Customer retention remains strong and within expectations.

Chartis saw $66 million worth of net prior-year adverse development, driven by loss emergence in casualty and increased activity in multiyear environmental liability policies. There was unspecified favorable development from prior-year cats, specifically from the Japan earthquake.

Operating income for SunAmerica Financial Group was $1.3 billion in the first quarter, up 12% from the prior-year quarter. The SunAmerica's net investment income was 4.8% better than last year's quarter and policy fees were up 1%. The company's premiums, deposits and other considerations totaled $5.6 billion in the quarter, compared to $6.4 billion a year ago, reflecting a decline in fixed annuity deposits due to low interest rates.

Also in the quarter, AIG made a $1.5 billion payment to retire the preferred interests of AIA Aurora LLC, a special purpose vehicle created to hold stock of American International Assurance Co. Ltd (Best's News Service, March 23, 2012). The payoff was made one year ahead of schedule and reduced the total government assistance by 75%.

Most AIG companies currently have a Best's Financial Strength Rating of A (Excellent). On the morning of May 4, shares of AIG (NYSE: AIG) were trading at $32.38, down 5.16% from the previous close.

(By Michael Buck, senior associate editor, BestWeek: Michael.Buck@ambest.com)