Posted on Feb 25, 2011 by Sergio Ulloa
The American International Group (AIG) reported net income of US$11.2 billion for the fourth quarter period in 2010, which ended on 31st December 2010. The bailed out insurer's income included the sale of assets as it restructures its business in order to repay the loan received from the US government in 2008 following the global collapse of financial markets.
The New York based insurer's full year earnings for 2010 totaled US$7.8 billion, reversing the loss in 2009 which amounted to US$10.9 billion. AIG's fourth quarter 2010 earnings of US$11.2 billion compares with the loss of US$8.87 billion in the same period last year.
However, after disregarding income generated from the sale of AIG assets in 2010, the insurer had an operating loss of US$2.2 billion from its global operations, compared to an operating loss of US$1.3 billion last year.
The troubled insurer received a total of US$182 billion from the US federal government
to rescue the insurer from the brink of collapse in 2008, after the US sub-prime mortgage crisis triggered a domino effect in the world financial markets. Since receiving the US government bailout, AIG has been restructuring global operations, which has included selling off international insurance subsidiaries, in order to generate capital to repay the US taxpayer.
Robert H. Benmosche, AIG's President and Chief Executive Officer, said: "We completed several key restructuring milestones in the quarter and we remain focused on long-term growth and building value at our ongoing insurance operations and other businesses."
Included in AIG's fourth quarter earnings was a net charge of US$4.2 billion for AIG's property insurance arm Chartis. The injection of capital was necessary to strengthen Chartis' provision against losses as the insurer is expected to face stiff competition in this segment of business. Chartis worldwide net premiums written amounted to US$7.6 billion in the last quarter of 2010.
AIG has sought to restructure the specialist property insurance business with Chartis by rationalizing activities and concentrating on less volatile markets, seeking to write more business with higher margins.
Part of AIG's restructuring programme saw the insurer sell its Alico subsidiary for US$16.2 billion to US rival Metlife
, with the cash from the sale - included in the fourth quarter 2010 results - going towards repaying the US Federal Reserve Bank.
AIG also negotiated the sale of its Japanese insurance arms AIG Star Life Insurance and AIG Edison Life Insurance to another US insurance rival, Prudential Financial, for approximately US$4.8 billion
; the sale being completed on the 1st February 2011. The proceeds from the sale will be used to make further repayments to the US government.
Meanwhile in Taiwan, AIG had a bid for its Nan Shan Life company from a Hong Kong led consortium, Premium Financial, rejected in September 2010
. This was on the grounds that it did not meet local regulatory criteria. However, in January 2011 a US$2.16 billion cash bid from Taiwan-based Ruen Chen was accepted by AIG for the Nan Shan operation
, with the funds again being used to help repay the outstanding US government loan.
Speaking on the future of AIG, Mr. Benmosche said: "In 2011, as we emerge from our restructuring, AIG will focus on growing our already strong businesses domestically and around the world, risk and capital management, strategic asset management, and cost savings throughout the organization."
AIG's restructuring of its global insurance network has meant that it has divested business operations in foreign and domestic ventures which did not offer significant returns for the New York based insurer. However, while AIG continues its streamlining, it has retained its profitable Asian arm - the American International Assurance Group (AIA) - which is the leading life insurer in the dynamic Asian region.
AIA is seen as AIG's jewel in the crown, with the latest company report reflecting the importance this market holds for the group as full year profits jumped by 54 percent in 2010 to reach a total of US$2.7 billion. In 2010, AIA was subject to a US$ 35.5 billion takeover bid from the major UK insurer Prudentia
l; this was finally dropped by the British insurer because shareholders were not prepared to underwrite the initial bid price and a lower bid was not acceptable by AIG. This subsequently lead to AIA being floated on the Hong Kong Stock Exchange in October 2010 in one of Hong Kong's largest initial public offerings (IPOs), which generated US$17.9 billion. As a result of the better than expected trading results for the year ending 30th November 2010, shares in AIA valued the company at US$32.6 billion at the close of trading on the Hong Kong stock exchange on the 24th February 2011.
Although AIG, along with other insurers, is facing challenging trading conditions in 2011 - particularly in the mature markets in the USA and Europe - with the effects of government imposed austerity measures likely to impact on disposable incomes, the group is well placed in the emerging growth market which exists in the Asia-Pacific region through its AIA business.
The AIA operation is now well placed to exploit the growth potential in the emerging markets in China, Thailand, Vietnam, Indonesia and Malaysia and is expected to make a significant contribution to AIG's financial results in 2011.
Insurance companies mentioned:
The American International Group is a leading international insurance organization with operations in more than 130 countries and jurisdictions globally.
The AIA Group is a leading life insurance organisation in Asia Pacific that traces its roots in the region back more than 90 years. It provides individuals and businesses with products and services for life insurance, retirement planning, accident and health insurance as well as wealth management solutions. Through an extensive network of more than 320,000 agents and approximately 23,500 employees across 15 geographical markets, the AIA Group serves the customers of over 23 million in-force policies in the region. The AIA Group has branch offices, subsidiaries and affiliates located in jurisdictions including Australia, Brunei, China, Hong Kong, India, Indonesia, Macau, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
A leading property-casualty and general insurance company, Chartis has over 45 million policyholders in 160 countries worldwide. With more than 90 years experience in the insurance industry, and a range of progressive products, Chartis aims to help clients comprehensively manage risk
Prudential Financial Inc
Prudential Financial Inc. is a financial services leader, with approximately US$750 billion of assets under management as at September 2010. Prudential Financial operates in the United States, Europe, Latin American and Asia, with approximately 42,000 employees worldwide
Prudential has been in the insurance and financial services business since 1848. Today they operate throughout the UK, US and Asia offering international health insurance and retirement planning services, supported by 27,000 employees worldwide.
Possessing over 140 years of insurance expertise, MetLife aims to be an innovator in the field of international Life insurance. Globally, MetLife is able to offer its clients accident and health insurance, life insurance, disability income protection, and retirement and savings products.
Nan Shan Life Insurance Company, Ltd. was established in July 1963. After its restructuring in January 1970, Mr. K.K. Tse, the then Chairman of American International Underwriters, became the first Chairman of the company. In forty years, Nan Shan has become a super insurance company with the most professional management, the best operational performance, and a solid financial foundation. Its agency force has been recognized as the best in Taiwan's life insurance industry.