The insurance giant, American International Group, said Friday that it was profitable for a second quarter as its core insurance operations continued to stabilize after its bailout by the government last year.
A.I.G. also said the amount of its government financial assistance dropped by 4 percent during the third quarter.
Its results were lifted by a rebound in the value of some investments that soured last year and helped drive it to the brink of collapse.
While new insurance business was stable compared with the second quarter, it was still sharply below levels a year ago as A.I.G. continued to struggle with its image in a generally weak economy. A recovery in its core insurance operations is considered vital to A.I.G. repaying the government.
The chief executive, Robert H. Benmosche, warned that earnings would remain choppy as the company executed its restructuring plan.
“We continue to focus on stabilizing and strengthening our businesses, but expect continued volatility in reported results in the coming quarters, due in part to charges related to ongoing restructuring activities,” Mr. Benmosche said in a statement.
A.I.G. posted a profit of $455 million, or 68 cents a share, in the third quarter, compared with a year-earlier loss of $24.47 billion, or $181.02 a share.
The insurer said it planned to record a $5 billion charge in the fourth quarter as it proceeded with spinning off two of its major life insurance businesses. It is shedding American International Assurance Company, or A.I.A., and American Life Insurance Company, also known as Alico, as it looks to repay the government.
Len Blum, a managing partner at the investment bank Westwood Capital, said “there is still tremendous risk.”
A.I.G. is still on very shaky footing because of the amount of changes it is undergoing and continued uncertainty about exactly how much it will be able to raise from selling assets, Mr. Blum said.
He said the market for selling big businesses, like A.I.G. was attempting to, remained weak because of the struggling economy.
Shares of A.I.G. fell $3.58, or 9.1 percent, to $35.70 in afternoon trading.
A.I.G. shares have been extremely volatile since the company was bailed out. They hit a low of $6.60 in March, rose as high as $55.90 in late August, helped in part by a reverse stock split, and then slipped again.
“It’s a casino gamble,” Mr. Blum said of the stock.
A.I.G. was bailed out in September 2008 as the financial crisis spiraled out of control. The insurer has received aid packages with a total value of more than $182 billion from the government. In return for that financial support, the government received an 80 percent stake in A.I.G.
The company was undermined not by its traditional insurance businesses, but by underwriting risky credit derivatives contracts. A collapse in the value of those contracts was the primary driver of A.I.G.’s near collapse.
Recovering financial markets and changes in accounting rules have helped A.I.G. to write up the value of its remaining risky assets.
Mr. Blum said, however, the portfolio of risky investments could again lose value or A.I.G. could be forced to take losses as it sold them off. The company still had $1.1 trillion in derivative contracts on its books as of Sept. 30, many of which were tied to risky mortgage debt.
As of Sept. 30, A.I.G.’s outstanding assistance from the government totaled $122.31 billion, down 4 percent from the end of the second quarter.
Of that outstanding assistance, A.I.G. owes the government $85.66 billion in loans and interest, a 2 percent decline from the end of the second quarter. The remaining $36.66 billion in outstanding assistance is tied the value of certain investments the government bought from A.I.G. As those investments pay off or rise in value, the government recoups more money.
The spinoffs will help A.I.G. reduce its outstanding assistance from the government by $25 billion. The government is taking preferred stakes in the two units as they are separated from A.I.G..
A.I.G. is also relying on improvement at its core insurance subsidiaries to generate profit to repay the government.
© 2009 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.
|
