More after the earnings call tomorrow….
Short reaction is Hancock saved his ass as he seems to be delivering up to this point on the capital return and expense reduction are running ahead of the expected rate….
P&C adjusted combined ratio of 89.5 vs 94.6 a year ago. Personal Insurance expense ratio falls 7.0 points to 40.0. Excluding FX, firmwide general operating and other expenses down 11%.
The Release:
AIG Reports Second Quarter 2016 Results Return on Equity Increases to 8.6% from 6.8%
Board of Directors Authorizes Repurchase of $3.0 Billion of Additional Shares of AIG Common Stock
NEW YORK–(BUSINESS WIRE)–Aug. 2, 2016– American International Group, Inc. (NYSE:AIG) today reported net income of $1.9 billion, or $1.68 per diluted share, for the second quarter of 2016, compared to $1.8 billion, or $1.32 per diluted share, in the prior-year quarter.
After-tax operating income was $1.1 billion, or $0.98 per diluted share, for the second quarter of 2016, compared to $1.9 billion, or $1.39 per diluted share, in the prior-year quarter.
“AIG’s second quarter results show strong improvement towards all the goals the Board and I announced in January,” said Peter D. Hancock, AIG President and Chief Executive Officer. “We have executed more quickly and smoothly than expected and our confidence in reaching our 2017 financial targets is high as our earnings become more sustainable.”
Year-over-year comparisons of net income and after-tax operating income were impacted by an adverse change in net loss reserve discount on workers’ compensation reserves of $455 million after tax, or $0.36per diluted share. Year-over-year comparisons of net income and after-tax operating income also were impacted by a decline in earnings from market sensitive assets of $631 million after tax, or $0.44 per diluted share. This decline reflects the strong returns on market sensitive assets in the second quarter of 2015, as well as the impact of sales of assets as part of the plan to return capital to shareholders. The year-over-year comparison for net income was also favorably impacted by an increase in net realized capital gains of $576 million after tax, or $0.52 per diluted share.
Second Quarter Operating Highlights
ROE expansion – Return on Equity (ROE) was 8.6%, up from 6.8% in the prior-year quarter. Normalized ROE improved to 8.8% from 6.7% in the prior-year quarter. Both metrics benefited from operating margin improvement and a lower capital base from the active return of capital to shareholders.
Continued Commercial underwriting improvements – While higher catastrophe losses and the use of a lower discount rate for reserves contributed 11.6 points to the Commercial Property Casualty loss ratio of 75.0, our strategic actions improved the Accident Year Loss ratio, as adjusted, by 4.2 points from the prior-year quarter to 62.4, which is a 3.8 point improvement from the full year of 2015.
Consumer expense discipline – Strategic actions to reduce expenses in Consumer, particularly in Personal Insurance, drove improved operating margins. The Personal Insurance expense ratio declined by 7.0 points to 40.0 from the prior-year quarter.
Ongoing firm-wide focus on efficiency – For the first six months of 2016, general operating and other expenses declined 7% from the prior year. General operating expenses, operating basis, excluding the impact of foreign exchange, declined 11% from the prior year. The improvement was largely driven by lower employee-related expenses, benefits rationalization and professional fee declines.
Legacy actions underway – AIG continued to move forward on its action plan for managing its Legacy portfolio, a key contributor to AIG’s capital return target. Monetizations of Legacy assets totaled $4.3 billionover the last three quarters consistent with our continuing strategy to focus capital on core operations while optimizing the value realized from the transfer or sale of assets and liabilities.
Book value per share growth – Benefiting from the impact of lower interest rates on AOCI, earnings growth and accretive share repurchases, book value per share of $83.08 grew 6% during the quarter. Book value per share, excluding AOCI and DTA, including dividend growth grew 5% to $61.78, during the quarter.
Second Quarter Capital & Other Highlights
Total capital returned to shareholders was $3.2 billion and included $2.8 billion of repurchases of AIG Common Stock, $90 million of warrant repurchases and $350 million in shareholder dividends. From the end of the second quarter through August 2, 2016, AIG repurchased an additional $698 million of AIG Common Stock resulting in a total year to date capital return of $7.9 billion.
On August 2, 2016, the Board of Directors authorized the repurchase of additional shares of AIG Common Stock with an aggregate purchase price of up to $3.0 billion, which increased AIG’s remaining share repurchase authorization on such date to approximately $4.0 billion. On August 2, 2016, AIG’s Board of Directors declared a quarterly dividend of $0.32 per share. AIG Parent liquidity was $6.7 billion at June 30, 2016.
Pre-tax realized capital gains in the second quarter were $1.0 billion and included $928 million of gains from the sale of shares in PICC Property and Casualty Company Limited. Gross proceeds received by the Non-Life Insurance Companies from the sale were approximately $1.25 billion, of which $448 million was remitted to AIG Parent in the form of dividends and tax sharing payments.
“I want to thank our employees for their hard work and client focus while embracing widespread change in our management structure, asset and liability mix and operating workflow. Together we are reshaping AIG, investing in talent and technology to become our clients’ most valued insurer,” said Mr. Hancock.
Property Casualty pre-tax operating income declined to $791 million, primarily reflecting the strong level of alternative investment income in the second quarter of 2015, as well as an underwriting loss in the current quarter driven by the effect of net loss reserve discount and higher catastrophe losses. The higher loss ratio was partially offset by a lower expense ratio. The current quarter loss ratio included a net loss reserve discount charge of $191 million compared to a net loss reserve discount benefit of $270 million in the prior-year quarter. In addition, catastrophe losses were $353 million, up from $209 million in the prior-year quarter. Pre-tax operating income benefited from an improvement in accident year losses and lower net adverse prior year loss reserve development.
Property Casualty net adverse prior year loss reserve development, including premium adjustments, was$58 million and included a $100 million reserve charge associated with industry-wide rulings in Floridacourts during the quarter that have increased the potential liability for workers’ compensation claims in that state by reversing certain aspects of regulations in place since 2003. Excluding this charge, Property Casualty reserves developed favorably during the quarter.
The improvement in the accident year loss ratio, as adjusted, reflected the continued execution of our strategy to enhance risk selection, improve underwriting discipline and manage exposures, including the use of reinsurance, and lower overall severe losses. The accident year loss ratio, as adjusted, improved in Casualty, reflecting the non-renewal of certain underperforming classes of business, as well as the effect of reinsurance. Financial Lines improved across all regions due to our pricing discipline and Specialty benefited from lower severe and attritional losses. These declines in the accident year losses were partially offset by an increase in Property severe and attritional losses.
The expense ratio declined 0.9 points largely driven by a reduction in the general operating expense ratio of 1.2 points due to lower employee-related costs resulting from ongoing actions to streamline our management structure and general cost containment measures.
In line with our planned portfolio optimization efforts, net premiums written decreased 21%, or 20% excluding the impact of foreign exchange. This decrease was primarily due to the continued execution of our strategy to enhance risk selection in our Casualty and Property product portfolios, the non-renewal of certain underperforming classes of business, the increased use of reinsurance, and adherence to our underwriting discipline in competitive market conditions.
Mortgage Guaranty is primarily composed of the operations of United Guaranty Corporation. Mortgage Guaranty’s pre-tax operating income increased to $187 million, primarily due to the decline in incurred losses from lower delinquency rates, higher cure rates and an increase in premiums earned from the growth in policies in-force.
Domestic first-lien new insurance written decreased 15% to approximately $13.0 billion, largely due to strong refinancing activity in early 2015. New business written in the second quarter of 2016 had an average FICO score of 742 and an average loan-to-value ratio of 92%, compared to an average FICO score of 752 and an average loan-to-value ratio of 91% in the prior-year quarter.
As of June 30, 2016, Mortgage Guaranty had estimated available assets under the Private Mortgage Insurer Eligibility Requirements of $3.3 billion compared to minimum required assets of $2.9 billion.