American International Group, Inc. has reported the company has posted a net loss of US$231 million for the third quarter of 2015 compared to net income of $2.2 billion for the same quarter of 2014.
“Compared to the prior-year quarter, the third quarter net loss was primarily due to lower income on hedge fund investments and assets marked to fair value through earnings, lower realized investment gains, and lower income from settlements of non-operating litigation,” AIG notes in a statement.
The same can be said for the company’s lower after-tax operating income. Lower income on hedge fund investments, lower income on assets marked to fair value through earnings, and assets in Corporate and Other contributed to operating income dropping 60% to $691 million in the third quarter of 2015 compared to US$1.7 billion in the third quarter of 2014.
For the first nine months of 2015, pre-tax operating income was US$6.2 billion compared to US$7.8 billion for the same period in 2014. With regard to net income or loss, AIG posted income of US$4.0 billion for the first nine months of 2015 compared to US$6.9 billion for the prior-year period, a drop of 41.3%.
For 2013 Q3, looking specifically at pre-tax operating income for Commercial Insurance, AIG notes that Property Casualty posted US$569 million in 2015 Q3 compared to US$952 million in 2014 Q3, down 40%; Mortgage Guaranty posted US$162 million compared to US$135 million, up 20%; and Institutional Markets posted US$84 million compared to US$153 million, down 45%. In total, Commercial Insurance was US$815 million compared to US$1.2 billion.
Breaking down Property Casualty, net premiums written (NPW) decreased 6% to US$5.2 billion in the third quarter of 2015 compared to US$5.5 billion in the third quarter of 2014; net premiums earned (NPE) was US$5.0 billion compared to US$5.4 billion, down 7%; and underwriting loss was -US$141 million compared to -US$116 million, up 22%.
AIG reports that lower net investment income and, to a lesser extent, an increased underwriting loss, resulted in Property Casualty pre-tax operating income decreasing 40% to US$569 million.
“The increase in the accident year loss ratio, as adjusted, reflected higher current accident year losses in healthcare and in U.S. commercial automobile liability, as well as higher attritional and severe losses in Property, partially offset by an improvement in Specialty,” AIG reports.
In addition, the decrease in the loss ratio was primarily due to lower catastrophe losses and a decrease in net adverse prior-year loss reserve development, partially offset by higher current accident year losses, and a net loss reserve discount charge for workers’ compensation reserves compared to a benefit in the prior-year quarter.
Excluding the effects of foreign exchange, NPW “decreased modestly primarily due to the continued execution of AIG’s strategy to enhance risk selection and optimize the product portfolio in U.S. Casualty. This decrease was partially offset by an increase in all other lines of business,” the statement adds.
For Personal Insurance, NPW for 2015 Q3 was US$3.0 billion, down 7% from US$3.2 billion in 2014 Q3; NPE was US$2.8 billion, down 8% from US$3.0 billion; and underwriting income was US$10 million, down 38% from US$16 million.
“This quarter’s results, while falling short of expectations due to market volatility, show signs that we are making progress to transform AIG for long-term competitiveness,” AIG president and CEO Peter Hancock says in the company statement. “Our strategy focuses on four major objectives: to narrow our focus on businesses where we can grow profitably, drive for efficiency, grow through innovation and optimizing our data assets, and return excess capital.”
Hancock notes that restructuring action taken in 2015 Q3 “mark the latest significant, visible steps in our transformation toward becoming more efficient, less complex, and able to respond to our clients’ needs with greater agility.”
Over the last year, AIG has “taken numerous actions to divest non-core assets and sculpt both our geographic presence and operating model to ensure efficient resource allocation going forward,” he notes, citing the company’s “efforts to streamline our footprint to focus on attractive opportunities, including the aging populations in the U.S. and Japan, International Property, travel insurance in China and Japan.”
Costs were also incurred related to AIG’s ongoing restructuring efforts. In 2015 Q3, AIG reports approximately US$274 million of pre-tax restructuring and other costs, with the remainder expected to be recognized through 2017.
Restructuring initiatives “are expected to result in pre-tax restructuring and other costs of approximately $0.5 billion, including approximately $0.3 billion of employee severance and one-time termination benefits, concentrated initially among management’s senior levels. Further staff reductions are anticipated in 2016,” the company notes.
“Approximately half of the remaining $0.2 billion relates to costs associated with modernization of information technology platforms, with the balance relating to costs associated with consolidation of legal entities and exiting lower return lines of business,” the statement continues.
The changes are “expected to generate annualized savings of approximately US$0.4 billion to US$0.5 billion when fully implemented,” AIG adds.
Other results include the following:
general operating expenses, operating basis (GOE) decreased 6% for the first nine months of 2015 compared to the same period in 2014;
book value per share of US$61.91 in 2015 Q3 increased 7% from the prior-year quarter; and
operating return on equity was 3.5% for 2015 Q3, and 7.1% for the first nine months of 2015
With regard to capital and liquidity, AIG notes the weighted average coupon on the company’s financial debt as of September 30, 2015 is less than 5% and the maturity profile is significantly improved.
Hancock (pictured left) says that the company remains committed to achieving its three financial targets through 2017. “We’ll continue to make select investments in technology and innovation to build sustainable competitive advantages. And lastly, we’ll continue to proactively manage our capital by using our remaining US$2.9 billion repurchase authorization to return capital to shareholders.”