American International Group Inc., the insurer majority-owned by the U.S. Treasury Department, said profit increased 27 percent on investments and improvements at its property-casualty unit.
Net income rose to $2.33 billion, or $1.33 a share, from $1.84 billion, or $1, a year earlier, the New York-based insurer said Thursday in a statement. Operating profit, which excludes some investment results, was $1.06 a share, beating the average estimate of 60 cents in a Bloomberg survey of 20 analysts.
Chief Executive Officer Robert Benmosche, 68, is counting on growth at AIG’s Chartis property-casualty and SunAmerica life insurance operations to attract private capital as the Treasury reduces its stake. The insurer said it purchased $7.1 billion in mortgage-related securities from the Maiden Lane III rescue fund this year as part of a plan to increase investment yields.
“Investors want to see that there’s some real tangible evidence, not in any single quarter, but over time, that Chartis profitability is improving,” John Nadel, an analyst at Sterne Agee & Leach Inc., said by phone before results were announced. “For the stock to be successful, it’s going to have to transition from a sale of non-core assets, capital-management story into a fundamental insurance-profitability-improvement story.”
Book value, a measure of assets minus liabilities, rose to $60.58 per share on June 30 from $57.68 three months earlier. The stock climbed 1 percent to $31.15 at 4:06 p.m. in extended trading in New York.
Chartis, led by CEO Peter Hancock, posted a pretax profit of $961 million, compared with an $826 million profit a year earlier. The global property-casualty insurer spent $1.02 for every premium dollar on claims and expenses, compared with spending $1.04 a year earlier when tornadoes struck Missouri and Alabama.
AIG’s SunAmerica U.S. life insurance and retirement services division, led by CEO Jay Wintrob, reported pretax profit of $777 million, compared with $766 million a year earlier. Wintrob has been increasing sales of variable annuities, the equity-linked retirement products, as clients shun fixed annuities with interest rates near record lows.
The Treasury has sold about $17.5 billion of AIG shares, reducing its stake to 61 percent in three offerings. AIG has bought about $5 billion of its stock in the two sales this year. Analysts including Nadel and Jay Gelb at Barclays Plc said the Treasury may announce another share sale in the current quarter. Matt Anderson, a Treasury spokesman, declined to comment before results were released.
The first two offerings were priced at $29 a share, and the third at $30.50. The government needs to average about $28.72 over all share sales to break even on its investment. The shares have gained about 33 percent this year.
AIG had received about $6 billion as of July 17 from auctions of assets by the Maiden Lane III vehicle created in 2008 to aid in its rescue, the insurer said in a statement that day. Proceeds first repaid a Fed loan to the vehicle. AIG may use cash from the Maiden Lane III sales to buy back shares from the U.S., Jimmy Bhullar, a JPMorgan Chase & Co. analyst, wrote in a July 10 research note.
Property-casualty insurers benefitted from lower natural disaster costs in the second quarter compared with a year earlier, when U.S. storms wiped out profit at Travelers Cos. The industry has been raising prices to compensate for lower returns on fixed-income investments and record catastrophe losses last year.
MetLife Inc. and Prudential Financial Inc., largest U.S. life insurers, reported yesterday that profit jumped on derivative gains and growth in Asia. Both firms expanded on the continent by buying units from AIG.
Once the world’s largest insurer, AIG has been divesting units to pay back a U.S. bailout that swelled to $182.3 billion. Benmosche raised about $6 billion by selling part of the stake in life insurer AIA in March, after divesting about two-thirds of the insurer in a 2010 offering. It’s also seeking to sell a plane-leasing unit.
AIG agreed this week to buy a broker-dealer unit from Hartford Financial Services Group Inc. to expand its investment- advising business. The insurer is planning to restore the AIG brand to its life insurance and property-casualty units this year, Benmosche said in June.
AIG was rescued in 2008 as its bets on the mortgage market soured. The bailout was revised at least four times as the U.S. extended more credit and lowered the interest charged. Outstanding government assistance to the insurer totaled about $30 billion as of June 14, AIG said on its website.
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