AIG will soon be a domestic insurer if the planned three way split comes through to let the company return Federal funds as it has already spun off its International insurer AIA. In related news, all top four investment bankers are involved in this break up and sale of AIG.
It’s part of AIG’s master plan, known as ‘Project Destiny,’ which aims to repay a big chunk of the $82 billion in loans owed to U.S. taxpayers.
AIG is breaking off three huge subsidiaries: Its property-casualty business, recently renamed Chartis; Southeast Asian life insurer AIA; and foreign life insurance unit ALICO. Chartis was spun off last week, but its shares will be not be sold to the government.
The current scrip (closing at $22.53 yesterday) is the result of a reverse split of 1:20 preventing a penny stock tag for a stock that was ‘once the pride of the nation’. AIG also does not have a very clear corp governance record till date, making short term arrangements with Liddy and Greenberg both regularly answering charges and stepping out
In June 2009, Revenue jumped 48% to $29.53 billion.
Operating income at AIG’s general-insurance business dropped 19% on a decline in underwriting profit, while net premiums written fell the same amount. Combined ratio, or the portion of premiums paid out on claims and expenses, rose six percentage points to 98.2%.(precarious, the true income stream as it may not dabble in other income enhancing trades now)
Meanwhile, the life-insurance and retirement-services segment’s loss narrowed sharply as the company said it had a difficult but improving operating environment. The investment assets as of Q1(Mar 2009) amounted to $560 billion and even a 10% loss on these largely policy liabilities, could wipe off the company
AIG now reports a profit of $2.57 per share at $4.57 billion, taking Equity up to $58 billion
On Monday, Robert Benmosche, the former chairman and chief executive of MetLife Inc. (MET), will step in as AIG’s new chief executive, and new director Harvey Golub, formerly chief executive of American Express Co. (AXP), takes over as non-executive chairman. Edward Liddy, who took both roles in September after AIG’s first bailout, will step down.
AIG’s maximum risk on a separate book of swaps sold to European banks narrowed to $177.5 billion as of June 30, compared with $192.6 billion at the end of March. The insurer said in June that declines in the value of assets tied to the swaps could have a “material adverse effect” on results and that the risk of losses on the derivatives may last “longer than anticipated.”
This risk can still wipe out equity in the next 4 quarters unless the bad assets are separated from the conglomerate. It also has had initial hiccups in selling off its Asian businesses though it will complete a couple of sales in Taiwan life insurance in the next few days The Government holds $8 billion equity in the newly formed AIA
The average weighted length of the swaps protecting residential loans is more than 24 years, while the span tied to corporate loans is about 7 years, the company said.
The government’s rescue includes a $60 billion credit line, $52.5 billion to buy mortgage-linked assets owned or insured by the company, and a Treasury investment of as much as $70 billion. AIG agreed to turn over a stake of almost 80 percent as part of the initial bailout, diluting private shareholders.
AIG – which is 80% owned by the U.S. government following its rescue of the company last September – posted income of $1.82 billion, or $2.30 a share, compared with a year-earlier loss of $5.36 billion, or $41.13 a share. Excluding capital losses and other items, earnings were $2.57 a share, compared with a prior-year loss of $10.15 a share.
Data courtesy Bloomberg, WSJ and other results announcements