American International (AIG) Q1 Earnings Miss, Plunge Y/Y

American International Group Inc. (NYSE:AIG) reported first-quarter 2016 operating income of 65 cents per share that missed the Zacks Consensus Estimate of 99 cents by 34.3%. Earnings also plunged 46.7% year on year.
Results suffered primarily due to negative impact of market volatility on investments which totaled 48 cents per diluted share.

General operating expenses decreased 4.1% year over year to $2.8 billion.

Behind the Headlines

Commercial Insurance posted a pre-tax operating income of $0.9 billion, down 39% from $1.5 billion in the year-ago quarter. The underperformance was primarily attributable to a steep decline in the income of the Property & Casualty and Institutional Markets sub-segments.

Property & Casualty operating income plummeted 96% year on year to $0.7 billion primarily due to 15% lower net premiums written and 44% lower net investment income.
Operating income in Institutional Markets plunged 96% to $6 million due to a 30% decline in net investment income and a 29% increase in benefits and expenses costs. This was partially offset by a 145% surge in premiums revenues.
Mortgage Guaranty posted a 12% increase in operating income as underwriting income rose 14%.

Pretax operating income at Consumer Insurance plummeted 17% year over year to $0.8 billion.
Operating income of the Retirement sub-segment declined 42% to $0.5 billion due to a 17% decrease in revenues from net investment income to $1.3 billion.
In the sub-segment, Life, operating income declined 39% to $0.1 billion due to 14% decline in revenues from net investment income to $0.5 billion. This was partially offset by 4% higher premiums revenue of $0.7 billion.
Under Personal Insurance, operating income was $0.2 billion. The segment had incurred a loss of $26 million a year ago.

The Corporate and Other segment posted an operating loss of $0.7 billion. The segment had posted a profit $0.2 billion last year.

Financial Position

AIG Parent liquidity was $7.1 billion as of Mar 31, 2016.

At the quarter end, AIG’s book value per share dipped 3.6% year over year to $58.52.

Operating return on equity was a 4.5% for the reported quarter compared with 8.4% as of Dec 31, 2014.

Share Buyback and Dividend Update

AIG repurchased $3.5 billion of shares in the first quarter along with $173 million of warrants to purchase its common stock. Additionally, from Mar 31 to May 2, 2016 AIG repurchased $870 million of its common stock.

The company rewarded its shareholders with dividends worth $363 million in the reported quarter. On May 2, 2016 the company’s board of directors declared a quarterly dividend of 32 cents per share.
Capital Highlights and Business Updates

On Apr 30, 2016, AIG priced the sale of 740 million shares which it owns of PICC Property and Casualty Company Limited (PICC P&C) and expects to receive gross proceeds of $1.2 billion once transaction is approved.

The company has also filed a registration statement for a planned IPO of up to 19.9% of Unity Guaranty Corp., a subsidiary of AIG, subject to approval, to start full separation of the entity.

AIG issued $1.5 billion aggregate principal amount of 3.300% notes, due 2021 as well as $1.5 billion worth 3.900% notes, due 2026.
In the first quarter, the company also repurchased $0.7 billion aggregate principal amount of certain debt issued or guaranteed by AIG for an aggregate purchase price of around $0.8 million.

Zacks Rank

Currently, AIG carries a Zacks Rank #3 (Hold).

Performance of Other Multi-Line Insurers

The bottom line at CNO Financial Group (NYSE:CNO) and MGIC Investment Corporation (NYSE:MTG) missed the Zacks Consensus Estimate, while Genworth Financial (NYSE:GNW) beat the same in the first quarter.