AIG Life Earnings Soar In 3Q
November 9, 2014 by Arthur D. Postal
WASHINGTON – Strong sales of indexed earnings in its retirement segment drove American International Group’s third-quarter life segment pretax earnings to increase 18 percent over the same period last year.
AIG’s life and retirement unit “achieved new records in our retirement income solutions business,” Kevin Hogan said. Hogan assumed control of AIG’s consumer – or predominately life – unit in a reorganization that followed the appointment of Peter Hancock as chief executive officer and departure of Jay Wintrob as head of the life and retirement unit.
The unit generated $2.9 billion in premiums and deposits and nearly $2 billion in net flows. Hogan said about half of the growth in retirement income solution sales came from index annuities, “which have become an important offering in our suite of retirement products.”
Hogan added that sales of fixed annuities “will remain challenged” in the low interest rate environment as AIG continues to maintain its new policy of strong business pricing discipline.
In an earnings call with analysts, Hancock also discussed federal regulation. AIG was designated last year as a systemically important financial institution (SIFI), and is therefore subject to regulation by the Federal Reserve. Prudential has also been designated as a non-bank SIFI and MetLife has been so designated but challenged it. A hearing on MetLife’s challenge to the designation was held Monday.
“We continue to work closely with the Fed and maintain a positive dialogue with the goal of providing the insights and information that are essential to operating as a well-regulated financial institution,” Hancock said. He said it is “too early” to discuss the metrics that will be used in evaluating AIG financials for non-banks, “and there are unique aspects of the insurance companies that are noteworthy.”
As an example, Hancock said, “In comparison to banks, insurance companies have significantly lower leverage and greater liquidity.” He noted that “Diversification of risk is the essence of insurance’s existence, while banks’ risk profiles tend to be highly correlated to the economic cycle.”
Furthermore, Hancock said, “Primary insurers are far less interconnected to each other than the banking industry is.” He added that “AIG’s policyholder focus and the requirements of our existing regulatory bodies also has a meaningful impact on how we operate.”
“We mention these differences to highlight the complexity involved in non-bank SIFI regulation,” he said.
The life insurance segment’s third-quarter pre-tax earnings of $1.34 billion exceeded property/casualty pretax earnings of $1.1 billion in the formerly P/C-dominated company.
Life insurance segment premiums and deposits were up 15 percent to $9.7 billion while net investment income was up 6 percent to $2.6 billion.
In earnings reported after the market closed Monday, AIG in general reported net income of $2.2 billion for the quarter which ended Sept. 30. This was up slightly from third quarter in the prior year, with total after-tax operating income of $1.7 billion, up from $1.4 billion in the prior-year quarter.
Diluted earnings per share were $1.52 for the third quarter of 2014, compared to $1.46 for the third quarter of 2013. After-tax operating income per diluted share increased to $1.21 for the third quarter of 2014, from $0.96 in third quarter of the prior year.