AIG Falls as Profit Hurt by Underwriting Slump, Charge

(Bloomberg) -- American International Group Inc. fell 2.7 percent after second-quarter earnings came in below estimates as a restructuring expense hurt results.

Profit in the period fell from a year earlier as private equity and hedge fund performance weakened, the New York-based insurer said Thursday in a statement. Net investment income, which declined 12 percent to $3.1 billion, is on target for the year, the company said.

Chief Executive Officer Brian Duperreault, who’s been in charge for a little more than a year, is working to show an underwriting profit by year-end. The combined ratio for general insurance was 101.3 in the quarter, meaning AIG lost 1.3 cents for every premium dollar after claims and expenses.

“Heading into the quarter, there was an expectation that AIG is in the final innings of fixing its commercial-lines book,” Amit Kumar, an analyst at Buckingham Research, said in an email. “However, investors were negatively surprised by the high level of severe losses.” He said he sees “renewed uncertainty in terms of how much time will it take to turn this behemoth around.”

AIG had “severe losses” of $293 million in the quarter, which it said was “more than double the long-term average.” Severe losses refer to non-catastrophe events greater than $10 million, according to AIG.

The shares fell to $53.66 at 4 p.m. in New York.

Duperreault said AIG made progress during the quarter. The insurer will start to show underwriting profitability as it enters 2019, he said on an earnings call Friday. The CEO also stressed the importance of expense management, which he said has to be “a way of life” at the company.

This week, AIG agreed to sell 19.9 percent of its DSA Reinsurance unit to Carlyle Group LP. Duperreault has also hired senior executives, and last month bought Bermuda-based reinsurer Validus Holdings Ltd. for about $5.5 billion to expand abroad and enter new businesses.

Duperreault said the company is always looking for acquisitions, but doing deals is difficult to predict. “Life insurance would be a place I would look if I could,” he said on the call.

Net income was also dented by $200 million in restructuring costs mainly for “efficiency initiatives,” AIG said.

 Other highlights:

  • Net income fell to $937 million, or $1.02 a share, from $1.13 billion, or $1.19, a year earlier.
  • Adjusted after-tax income per share was $1.05, below the $1.21 average estimate of 17 analysts surveyed by Bloomberg.
  • Book value was $68.65 per share as of June 30, down from $69.95 on March 31.
  • The underwriting loss was $89 million, compared with a gain of $149 million a year earlier.
  • The life and retirement business had adjusted pretax income of $962 million, down from $993 million from a year earlier.

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