AIG Reports Profit In Q3 But Misses Estimates On Higher Payout
AIG (NYSE:AIG) reported mixed third quarter earnings on Wednesday, with revenues beating estimates but earnings missing market expectations of $1.21 by 21 cents. The company’s revenues grew over 3% to $13.6 billion against consensus estimates of $12.9 billion on strong growth in Corporate and Other run-off insurance lines. AIG reported an after-tax operating income of $1.1 billion or $1.00 per share versus expectations of $1.21 per share.
This decline was driven by a $622 million, or $0.37 per share, structured settlement charge which had to be paid out to disabled recipients who had lived longer than the company had anticipated in 2010. AIG has exited from or wound down most of its troublesome “legacy” products but this settlement charge is emblematic of how legacy policies can still hurt the insurer.
The company reported a net income of $462 million, or $0.42 per share, in Q3 2016 versus a loss of $262 million in the prior year quarter. This profit was aided by a 9% reduction in operating costs and could have been higher but for the net realized capital loss of $526 million, or $0.48 per diluted share, owing to higher foreign exchange losses related to a weak British pound post-Brexit.
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Property And Casualty Insurance
AIG ranks among the top ten Property & Casualty (P&C) insurers in the U.S., with a market share of 3.23% in terms of premiums earned. In Q3 2016, the P&C division’s net premiums declined 17% y-o-y to $4.4 billion but net investment income increased 36% to $965 million. This led to a 23% rise in the segment operating income to $729 million.
The accident year combined ratio – the ratio of claims and expenses paid to premiums earned – improved from 96.2% in Q3 2015 to 92.4% in Q3 2016, owing to a lower expense ratio- the ratio of expenses to premiums earned – and lower severe losses. 
Life and Retirement Insurance
The Life and Retirement division’s revenue declined by 2% to $6.7 billion but pre-tax operating income increased by 111% owing to a 17% decline in expenses. 
The Personal Insurance accident year combined ratio improved from 99.2% in Q3 2015 to 96.5% in Q3 2016, owing to a lower expense ratio which declined from 46.2% in Q3 2015 to 40% in Q3 2016. 
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