AIG (NYSE:AIG) reported a net loss of $4 billion for the fourth quarter of 2012, affected primarily by a $4.4 billion loss realized on the sale of its aircraft leasing operations, ILFC, to an investor group comprising New China Trust Co. Ltd., China Aviation Industrial Fund and P3 Investments Ltd. Excluding this one-time loss, after-tax operating income attributable to AIG for the three months ending December was $290 million, down from $1.4 billion in the fourth quarter of 2011. Hurricane Sandy took its toll on the property and casualty division which reported an operating loss of $945 million. On the bright side, the life and retirement division reported a 20% increase in operating income helped by investment returns and variable annuity sales.
The most important development for AIG during the fourth quarter was the U.S. Department of the Treasury’s sale of its remaining shares of AIG common stock with a positive return of $22.7 billion on its $182 billion commitment to the company following the financial crisis of 2008. We are currently updating our model for the fourth quarter and fiscal year results.
Property And Casualty
The total catastrophe losses resulting from Superstorm Sandy were $2 billion, and excluding these losses, the property and casualty division reported operating income of $1 billion helped by strong investment results. Net premiums written during the quarter and the fiscal year were in line with the prior year’s figure. AIG reported 4% growth in net premiums written in Asia, but this was offset by a 3% decline in the U.S. and a 4% decline in EMEA (Europe, the Middle East and Africa). Asia appears to be an area of greater focus for the company. The region accounted for 23% of premiums written by the P&C division in 2010 while the percentage contribution increased to 30% in 2012.
Net investment income reported by the division increased by 21% over the fourth quarter of 2011 while the full year investment income was up by 11%. The P&C division has a relatively more conservative portfolio compared to the life and retirement division. Around 81% of the division’s invested assets are in fixed maturity securities and only $712 million are in mortgages and other loans. In contrast, the life and retirement insurance division has $17 billion out of $203 billion invested in mortgages.
Life And Retirement
The life and retirement division reported operating income of $1.1 billion for the fourth quarter, up from $912 million in 2011. A 12% decline in premium and other income was offset by a $343 million increase in net investment income. This increase was helped by a $57 million fair value gain on investment in People’s Insurance Company (Group) of China Limited (PICC). Low interest rates had a detrimental effect on base investment yield which dropped from 5.44% in the fourth quarter of 2011 to 5.33%.
The decrease in premium and deposit income was due to a decline in fixed annuity deposit affected by AIG’s pricing policy which takes into account the low interest rate environment. The company however cashed in on other insurers’ (like MetLife (NYSE:MET)) pull-back from the variable annuity market as variable annuity deposits increased by 50% year-on-year to $1.2 billion.