AIG shows life after near-death with $2.16bn profit
Sun Herald
Sunday August 9, 2009
AIG, the troubled insurer kept alive last year by a $US180 billion ($213 billion) US Government bail-out, has crept back into the black with a quarterly profit of $US1.82 billion.It came despite weak underwriting earnings as AIG's core business suffered from the group's well-publicised financial hardship.News of the company's first profit for six quarters sent its shares up 11 per cent in early trading on Wall Street on Friday. Known to football fans as Manchester United's shirt sponsor, AIG was the world's largest insurance company until it suffered catastrophic losses on complex derivatives.Chief executive Edward Liddy said the results reflected stabilisation in certain areas: "While our insurance companies' operating results remain challenged, largely driven by weak economic conditions and the lingering effect of negative AIG events earlier in the year, performance trends stabilised."The company has been battered by controversy over bonuses for executives at its disastrously performing financial products division and the use of taxpayers' money to fund a get-together at a lavish Californian beachside hotel.In an effort to avoid the stigma surrounding its financial woes, AIG has downplayed the use of its name. Premiums written in its general insurance division still fell by 19.2 per cent to $US7.9 billion, hit by the weak economy and "the effect of AIG's challenges" across the entire portfolio.AIG sold assets to raise cash, offloading a life insurance business for $US680 million and a subsidiary, 21st Century Insurance, for $US1.9 billion. The sale of a Tokyo office block raised $US1.2 billion.Michael Holland, a money manager at Holland & Co, said: "The reality is that the numbers are getting better and it could be viewed as a potentially constructive first step towards financial success."At the end of June, AIG owed $US44.8 billion to the Federal Reserve Bank of New York and had drawn down $US1.2 billion of a $US29.8 billion credit line from the US Treasury. It had $US41.6 billion in preference shares outstanding.The roots of AIG's difficulties lie in its financial products arm, largely run out of London, which developed a niche in insuring financial institutions against the risk of default on seemingly low-risk derivatives, including mortgage-backed securities. When the credit crunch began, AIG faced huge claims.Since its bail-out, AIG has been gradually dismantling this division.Liddy is to stand down this week to make way for a former MetLife insurance boss, Robert Benmosche, who will become AIG's fifth chief executive since 2005.
© 2009 Sun Herald
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