AIG Losses Return in Q210 on Continued Wind-Down Efforts

Troubled Insurer American International Group (AIG) reported a $2.7bn net loss in the second quarter of 2010 (Q210), compared with a $1.8bn net income in the year-ago quarter. AIG returned to a loss this quarter after posting a $1.5bn profit in Q110 on improved mortgage results. The company’s losses reflect a $3.3bn non-cash goodwill impairment charge related to American Life Insurance Company (ALICO), a unit AIG plans to sell by year-end. The impairment related to ALICO was partially offset by a $228m fee paid by Prudential in connection with terminating its purchase of American International Assurance (AIA). “AIG’s continuing insurance operating results remain solid, while the company continues to execute on its restructuring plans and prepares for separation from the US government,” said AIG president and CEO Robert Benmosche. “Our overall strategy remains unchanged. We remain focused on monetizing AIA and ALICO as quickly as possible in order to repay taxpayers, at values reflecting the unique strengths of these highly attractive franchises.” Recently, AIG decided to re-initiate plans to take AIA public, subject to regulatory approval. In combination, these two transactions are expected to allow the company to substantially reduce its obligations to the Federal Reserve Bank of New York (FRBNY). AIG reported $358m fair value gains on Maiden Lane III, which were partially offset by interest and amortization on the FRBNY credit facility and third party debt. The company’s Financial Services unit reported $42m of Q210 pre-tax income — compared to a pre-tax loss of $103m during Q209, with operating earnings at International Lease Financial Corp offset by losses at AIG FInancial Products (AIGFP), which continues to wind-down its business and portfolios. AIGFP posted a $132m operating loss in Q210, essentially flat compared with the previous-year quarter. Interest expense on inter-company borrowings and the effect on operating results related to the continued wind-down of AIGFP’s portfolios were lower in Q210 compared to the same period in 2009. AIGFP also had positive results related to the net effect of changes in credit spreads on the valuation of AIGFP’s assets and liabilities. “AIGFP continues to make progress on its wind-down and de-risking activities,” Benmosche said. “At the appropriate time, we plan for AIG to directly assume the management of the investment and debt portfolios, leaving only the derivatives portfolio within Capital Markets.” Write to Diana Golobay. Disclosure: the author holds no relevant investments.