AIG’s Revenue Jumps And Name Brand Recovers But Sandy Fallout Uncertain

by Trefis Team
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AIG’s (NYSE:AIG) earnings for the third quarter of 2012 showed a strong performance across all business lines as total revenues increased by 39% over the same period last year. Perhaps more significant was the management’s decision to rename its businesses, Chartis to AIG Property Casualty and SunAmerica to AIG Life and Retirement, reflecting a recovery in the public perception of the company which had fallen quite dramatically following the company’s massive bailout in 2008.

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Property and Casualty

AIG’s P&C business continued to perform strongly as net premiums written during the September quarter were in-line with the figures for the same period last year. Claims and adjustment expenses dropped 3% with catastrophe losses in the commercial P&C insurance segment falling to $603 million from $2.2 billion last year. The high catastrophe related losses last year were due to Tohoku catastrophe in Japan and earthquakes in New Zealand.

Prior to Superstorm Sandy, there were no major natural disasters in the current calendar year that had any major impact on AIG. However, with 5% of its direct premiums in the State of New York, AIG will face the brunt of the storm in the fourth quarter earnings. AIR Worldwide and Eqecat, the firms used by the insurers to estimate the impact of the disaster, expect losses between $5 billion to $15 billion, almost three times that caused by Hurricane Irene last year. [1]

The losses from Sandy are not expected to have any long-term effect on the company’s margins. The P&C division will operate under the name AIG Property Casualty from mid-November. The name Chartis was given to the division following the 2008 financial crisis which forced the company to accept a bailout of $182 billion from the U.S. government. The change in name particularly to a direct representative of the parent company shows how far the company has come in terms of recovering its brand name. The life and retirement division has also been renamed to a similar effect to AIG Life and Retirement.

Operating income for the retirement services division more than doubled from 2011 in the September quarter. The increase was due to higher sales of products, particularly variable annuity products. Several insurers, including MetLife (NYSE:MET) which was the highest seller in 2011, are cutting back on variable annuities, leaving the market open for AIG. AIG’s market share increased from 4.5% to 5.7% in the first half of the year given the popularity of the product. [2] We expect AIG to benefit in the short term from MetLife’s exit in the near future.

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  1. Hurricane Sandy losses may be triple those of Irene, Reuters, 30th October []
  2. U.S. Individual Annuities Sales Survey, LIMRA []
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