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AIG announces $3bn shares buy back

Asset sales: American International Group has announced further share buy backs as a way of returning equity to shareholders (Photograph by Michael Nagle/Bloomberg)

NEW YORK (Bloomberg) — American International Group said it will buy back $3 billion of stock after second-quarter profit climbed 6.3 per cent, helped by asset sales. The insurer climbed in extended trading in New York.

Net income advanced to $1.91 billion, or $1.68 a share, from $1.8 billion, or $1.32, a year earlier, New York-based AIG said in a statement. Operating profit, which excludes some investment results, was 98 cents a share, beating by 6 cents the average estimate of 20 analysts surveyed by Bloomberg.

Peter Hancock, chief executive officer, has been selling assets and slashing jobs to boost margins after posting losses for three straight periods through the first quarter. He announced a plan in January to return $25 billion to shareholders over two years. The next month, AIG agreed to give board representation to Carl Icahn and John Paulson, the activists who pressured Hancock to split up the company and focus on property-casualty operations. Icahn said last week that he’s had friendly discussions with the CEO about speeding up asset sales.

“AIG’s second-quarter results show strong improvement towards all the goals the board and I announced in January,” Hancock said in the statement.

The insurer, which reported results after markets closed, had slipped 13 per cent this year as of 4pm in New York, compared with a 5.5 per cent gain in the S&P 500 Index.

Book value, a measure of assets minus liabilities, climbed to $83.08 a share at the end of June, from $78.28 the prior quarter. Hancock has been reducing the share count through repurchases, as the company returned $7.9 billion of capital to investors this year through yesterday. Second-quarter results included a pretax gain of $928 million from the sale of shares in China’s PICC Property & Casualty Co.

Pretax operating income at commercial property-casualty operations, led by Rob Schimek, dropped 34 per cent to $791 million. The combined ratio worsened to 102.1 from 98.8, meaning the business had an underwriting loss of 2.1 cents for every premium dollar after paying claims and expenses. Adjusted for catastrophes and reserve charges, that measure improved.

Results were hurt by a $100 million cost because of the potential for higher-than-expected liabilities on workers’ compensation policies in Florida after unfavourable court rulings. Costs tied to catastrophes climbed 69 per cent to $353 million. The industry was stung in the quarter by wildfires in Canada, storms in the US and earthquakes abroad.

Policy sales slipped 21 per cent to $4.42 billion as Schimek narrowed the company’s focus. He has reduced some risks through reinsurance and opted not to renew policies in lines of business where returns were too low.

Profit at the institutional markets segment slipped 27 per cent to $110 million. The mortgage insurance operation, primarily comprised of United Guaranty, contributed $187 million, up 19 per cent as underwriting improved. Hancock decided this year to partially spin off UGC, and the unit has filed for an initial public offering.

Operating profit at the retirement business led by Consumer Insurance CEO Kevin Hogan, slipped 7.8 per cent to $741 million as investment income declined. Life insurance rose 23 per cent to $184 million. Personal insurance more than doubled to $179 million as underwriting improved, AIG said.

AIG’s operating return on equity dropped to 6.7 per cent from 9.3 per cent. Normalised for one-time items such as the workers’ compensation charge and volatility in returns from investments such as hedge funds, the figure climbed to 8.8 per cent from 6.7 per cent. Hancock cut general operating expenses 16 per cent to $2.59 billion.