AIG: Return to Sustainable Profitability?

AIG’s top executives struck an optimistic note as the insurer reported improved 2011 fourth-quarter profit results. CEO Robert Benmosche told analysts during a conference call following the earnings report last month that AIG is regaining its strength and is moving in the right direction.

AIG posted $19.8 billion profit for the fourth quarter, helped by $17.7 billion in tax benefits. It also booked $1.6 billion in operating income from its insurance businesses and other units.

“We are well on our way to our aspirational goals – well on our way,” Benmosche told analysts.

“To us, the fourth quarter is a clear demonstration that this company has not only survived, it’s got its strength, it’s got its key people, and we are moving in the right direction,” he said.

“And we are going to continue to build value for our clients, for our shareholders, and have a great place for our employees to thrive in.”

“For us here, a year ago was probably a decade ago. But it was only 12 months…and many of you had said, ‘I don’t think they can make it,'” Benmosche recalled. “When we started the second half of 2011, we told all of you that we are moving from saving AIG to building AIG. The crisis was over.”

Benmosche also addressed some concerns being raised by analysts. Benmosche said one of the worries he keeps hearing is that Chartis has to operate within a soft market. “You heard us say throughout the year that we are now working hard to at least earn our cost of capital. [Chartis CEO Peter Hancock] has talked very eloquently about the risk-adjusted profitability. And we’ve got to look at the risk we are writing and do it in a more holistic way because our new organization allows us to do that.”

AIG Chief Financial Officer David Herzog added during the conference call that the fourth quarter results “signifies our view that we have returned to sustainable profitability.”

“I would characterize the quarter as pivotal,” Herzog said.

“Our core insurance businesses made $1.3 billion despite $467 million of cat losses,” Herzog remarked.

Commenting on Chartis, Herzog emphasized that loss reserve development for the year and for the quarter was benign.

Some Still Remain Skeptical

However, some analysts argued that the results weren’t as good as AIG executives made them out to be. Analysts noted that much of the operating income came from one-time items, including proceeds from the sale of AIG’s Asian life-insurane business.