US insurer American International Group (AIG) has reported a fourth-quarter loss of $8.9bn and warned that it may need more support from the US government.
AIG blamed the loss, down greatly from last year’s quarterly loss of $61.7bn, on one off costs related to paying back government loans and selling off large parts of its insurance businesses. The loss included $2.3bn of reserve strengthening.
The New-York based insurer, which is nearly 80% owned by the government after receiving a access to $182.3bn of bail out funds, had begun to return to profitable ways after posting two consecutive profitable quarters.
The net loss for the year was $11.0bn for 2009, down from $99.3bn in 2008.
Alan Devlin, analyst at Atlantic Equities, says the fourth-quarter loss is not as bad as it may appear.
“AIG was hit with $9.7bn of essentially one off charges. If you take those out it would have made a $1.2bn profit,” Devlin told Reactions.
The net loss includes $6.2bn related to repaying the Federal Reserve Bank of New York, $2.8bn associated with the sale on Nan Shan Life, loss reserve strengthening of $2.3bn and a valuation allowance charge of $2.7bn for tax benefits not presently recognisable.
AIG’s general insurance unit, Chartis, reported a fourth-quarter loss of $1.8bn and a combined ratio of 132.5%, including 28.2 points from reserve strengthening.
The firm’s domestic life business, now branded SunAmerica Financial Group, reported fourth quarter profit of $1bn, compared with a loss of $835m in 2008.
“The life businesses are probably OK,” Devlin says. “The P/C business had a big reserve development. Take that out and the combined ratio is 104%, which is a bit disappointing given AIG’s peers are reporting combined ratios in the 90s.”
AIG is in talks to sell American International Life Insurance Company – its foreign life insurance operations in Japan, Europe, the Middle East and Latin America – to Metlife and is planning an initial public offering of American International Assurance.
“As AIG pays down the business and sells Alico, there will be massive noise in its earnings,” Devlin says.
In a filing with the US Securities and Exchange Commission, AIG said it may need further support from the government, even as it attempts to pay back the $182bn owed to tax payers.
The potential need for further financial support came as an unpleasant surprise, Devlin says.
“If markets were going down and spreads widening it would be understandable that AIG needs more money. But the markets have recovered so it is surprising they still need more,” Devlin says.
Standard & Poor’s Equity Research analysts noted that the performance of AIG’s insurance units is worrying. “Our takeaway from these results is that AIG's core insurance units remain weak, and that a high degree of execution risk remains in AIG's turnaround strategy,” they said in a research note.