AIG ends 2012 with positive operating profit despite storm losses, liquidity of $1.6 billion

By Lisa Kerner

Charlotte, N.C., Feb. 22 - American International Group, Inc. president and chief executive officer Bob Benmosche said despite a $2 billion hit as the result of "superstorm Sandy" in the fourth quarter, the company reported an overall operating profit.

AIG reported fourth-quarter after-tax operating income of $290 million, or 20 cents per diluted share. After-tax operating income for the full year was $6.6 billion, or $3.93 per diluted share.

For the same periods in 2011, these figures were $1.5 billion, or $0.77 per diluted share, and $2.1 billion, or $1.16 per diluted share, respectively.

The storm, the second largest single catastrophe event for AIG in the United States, led to an operating loss of $945 million in the fourth quarter for AIG Property Casualty. This segment reported operating income of $367 million for the prior year period.

Excluding catastrophe losses, AIG Property Casualty's fourth-quarter 2012 operating income was $1 billion, according to AIG's earnings news release.

During the full-year, AIG benefitted from the sale of its remaining AIA Group Ltd. shares for $6.5 billion, realizing a gain of $240 million.

"As you look at our liquidity, we're sitting here with about $16.1 billion as a result of the AIA sale, and this is on top of very, very strong capital in all of our insurance companies," said Benmosche.

Liquidity for the period ended Sept. 30 was $11.6 billion.

AIG shareholders' equity totaled $98 billion at Dec. 31.

"Our highest priority is to make sure that we focus on getting high-cost debt out, reducing our expenses for interest and improving our coverage ratio," said Benmosche.

While AIG may consider things like a modest stock buyback or adding a dividend to the stock as the year progresses, "We're going to wait until we're very, very sure we're in great shape," said Benmosche.

The CEO wants the upticks in the company's ratings to continue.

"It's important we retain our ratings and improve those ratings," he said.

Also during the fourth quarter, the Treasury completed an offering of its remaining shares of AIG common stock for proceeds of $7.6 billion, marking the full repayment of America's financial support of AIG.

In December, AIG agreed to sell up to a 90% stake in ILFC to an investor group. The transaction is slated to close in the second quarter.

Streamlining the balance sheet

Chief financial officer David Herzog said Sandy losses "came in as expected," but AIG's cash flow remains strong and capital management is the company's current priority.

"We've been very clear about our intention to streamline our balance sheet and intend to execute on that plan in a very disciplined manner."

"Our targeted improvement in the fixed-charge coverage ratio was one to two turns for the next year or so through both capital management and earnings growth," Herzog said during the earnings call.

"Towards that end, we recently announced a tender offer targeting a number of our hybrids and legacy Sun America securities."

Actions other than the tender offer, scheduled maturities and available hybrid calls - all of which are expected to result in substantial progress to 2013 capital management goals - will be opportunistic, said Herzog.

Financial highlights

The New York-based insurance company reported a fourth-quarter net loss of $4 billion, or $2.68 per diluted share, compared to net income of $21.5 billion, or $11.31 per diluted share, for the prior-year quarter.

For the full-year period, net income was $3.4 billion, or $2.04 per diluted share, compared with $20.6 billion, or $11.01 per diluted share, for the full year of 2011.

Distributions from insurance operations totaled $1.4 billion in the fourth quarter of 2012 and $5.3 billion for the full year of 2012, in each case excluding a capital contribution to AIG Property Casualty of $1 billion following Sandy.

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