American International Group swung to a second-quarter profit, aided by heady gains in its private-equity investments and the absence of Covid-19-related charges.
The quarter was the first full one under new Chief Executive Peter Zaffino, and comes as the company is preparing to hive off its big life-insurance and retirement unit into a self-standing company. In July, it said that investment firm Blackstone will purchase a 9.9% equity stake in the unit for $2.2 billion in cash and manage certain of its assets.
The global insurance conglomerate is one of the last publicly traded insurers to post quarterly results.
The company reported a 24% increase in “net written premiums,” a key metric of revenue growth, for its property-casualty operations, attributable partly to new business and premium-rate increases. The rate increases helped improve its underwriting results. Overall, AIG posted net income of $91 million, compared with a net loss of $7.9 billion in the year-earlier quarter, when it booked a loss from the sale of a reinsurance unit for discontinued business lines and old investments.
AIG joined some other big insurers in boosting its share-buyback program, adding $5.1 billion to the $900 million in its current allocation. On Wednesday, Allstate Corp. and MetLife Inc. added $5 billion and $3 billion, respectively, on the back of improved earnings and recent divestitures of units judged noncore.
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AIG’s adjusted after-tax income, which is closely followed by analysts because it excludes items considered nonrecurring, totaled $1.33 billion, up 137% from the year before.
For the industry, this year’s second quarter marks a stark contrast to a year ago as the coronavirus took a heavy toll on the U.S. economy. For many business insurers, the year-ago results included the booking of reserves to cover expected pandemic-related claims. At AIG, those year-earlier Covid-19 losses tallied $458 million for anticipated claims on products such as travel insurance and accident-and-health policies.
AIG didn’t add to its Covid-19 reserves in this year’s second quarter.
Also aiding insurers in the second quarter was strong performance of their private-equity investments. While insurers mostly invest in high-quality bonds, many allocate a single-digit percentage of their investment portfolios to private-equity funds. Private-equity funds have performed well as companies owned by leveraged-buyout and venture-capital funds have gone public at high valuations in the rallying stock market.
Insurers’ report private-equity results with a one-quarter lag, so insurers’ second-quarter results reflect first-quarter activity. Analysts expect insurers to have strong private-equity income in their third-quarter results, too.
In other results this week, Allstate on Wednesday posted a 52% decrease in underwriting income for its car- and home-insurance business, though the company’s overall net income surged 30% to $1.6 billion. The improvement in net income was partly due to higher private-equity investment income.
In its car-insurance business, accident volume jumped 47% from the year-earlier period, but remained below the same period in pre-pandemic 2019 because large numbers of people continue to work remotely, Allstate Chief Executive Tom Wilson said in an interview.
In the year-earlier quarter, insurers benefited from an unprecedented drop in miles with a subsequent steep decline in accident volume, as many Americans hunkered down in their homes during the early stages of the Covid-19 pandemic. At the time, underwriting profits soared, even as many car insurers refunded some premiums to customers.
Total miles driven “are pretty close to, and in some places higher than, pre-pandemic,” Mr. Wilson said.
Like some other carriers, Allstate noted that repairs are costing more as the broader economy struggles with supply-chain bottlenecks.
Also Wednesday, MetLife said its second-quarter net income surged to $3.37 billion from $68 million in the proper-year period, buoyed by a gain from the sale of its car- and home-insurance unit, higher revenue in its employer-benefits business, and higher private-equity investment income.
Source: Wall Street Journal
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