AIG Reports Loss, But Greatly Reduced from 2008

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May 7, 2009 Thursday 08:24 PM EST

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AIG Reports Loss, But Greatly Reduced from 2008

Alyn Ackermann

NEW YORK

American International Group reported a first-quarter net loss of $4.35 billion, a little over half the loss it reported for the same period a year ago and a fraction of the record-setting loss it posted for the last quarter of 2008.

Chairman and Chief Executive Officer Edward Liddy contrasted the loss to the $7.81 billion loss in the first quarter of 2008 and the $67.66 billion loss the struggling insurer reported for the year's fourth quarter.

"The loss we have reported was substantially -- I repeat substantially -- lower than the last quarter, that's the fourth quarter of 2008, and also lower than the first quarter or 2008," Liddy said during a conference call with equity analysts. "We have a good plan in place, and our job now is to execute on that plan."

Revenue rose 45.8%, to $20.46 billion from $14.04 billion in the same period a year ago. AIG reported a $23.76 billion decline in revenues during the fourth quarter of 2008.

Since the company was nearly pushed into bankruptcy last September by skyrocketing losses and collateral payments tied to credit default swap contracts, it has received several rounds of financial support from the federal government, which have grown to a rescue plan of up to $182.5 billion in loans and other assistance (BestWire, March 2, 2009).

The first-quarter loss was due primarily to restructuring costs as the company reorganizes and sells assets to repay the federal aid, and in particular from costs involved in unwinding the unit which wrote the CDS contracts, AIG Financial Products, the company said.

It reported a pretax loss of $1.9 billion for restructuring charges "primarily related to the wind-down" of AIGFP.

It also reported a fair value pretax loss of $2.2 billion on toxic assets acquired by Federal Reserve credit facilities, which were established to remove assets from AIG's books and to eliminate CDS contracts by obtaining the underlying assets.

"We are making progress in our restructuring plan, though there is much left to do," Liddy said. "Our financials are improving, though they are still affected by restructuring costs."

Liddy stressed that AIG was not seeking any additional financial aid, which it had done after each quarterly report following the September cash-flow crisis.

"We are announcing no new arrangements with the Federal Reserve or with the U.S. Treasury," he said. "We are simply executing on what we've previously announced."

AIG said net written premium for commercial insurance fell 18.3%, to $4.18 billion from $5.11 billion in the same quarter a year ago. Net written premium for personal lines fell 26.3% during the same period, to $570 million from $773 million, and net written premium for general insurance fell 16.4%, to $13.41 billion from $16.04 billion.

Liddy and others said the reductions showed that allegations by some competing insurers, and other critics, that AIG was using the federal aid to retain market share by offering low-ball rates was not true.

As part of the March 2 plan, AIG has been able to greatly reduce interest it must pay as part of the federal rescue.

Under the revamped plan, AIG established special purpose vehicle as part of its effort to create separate entities of American Life Insurance Co and American International Assurance Co. Ltd. through the Federal Reserve Bank of New York.

It also has created an SPV for its core property/casualty businesses under AIU Holdings, which will serve as the holding company for AIG's Commercial Insurance, Foreign General Insurance, and Private Client Group units (BestWire, April 21, 2009).

The company said that since September, it entered or closed 12 separate transactions involving selling business units or selling off investments.

Most AIG insurance companies currently have a Best's Financial Strength Rating of A (Excellent) with a negative outlook.

Shares of AIG (NYSE: AIG) closed at $1.95 on May 7, prior to the release of the quarterly report, up 6% from the previous close.

(By Alyn Ackermann, senior associate editor, BestWeek: [email protected])

May 8, 2009