AIG Reports Q3 Net Loss of $4.1 Billion

American International Group reported on Thursday a net loss of $4.1 billion and an after-tax operating loss of $3.0 billion for the third quarter ended Sept. 30, 2011, compared with a net loss of $2.5 billion and an after-tax operating loss of $114 million for the third quarter of 2010.

The results were hurt by several macroeconomic drivers, the company said, including declining equity markets, widening credit spreads, and declining interest rates.

The company said the quarterly results included a loss of $2.3 billion in the market valuation of AIG’s holding of AIA Group. AIG divested this Asian life insurer last year but still maintained a stake in the company.

Third quarter results also included a $931 million fall in the value of AIG’s holding in Maiden Lane III, a government-controlled special purpose entity set up to purchase collateralized debt obligations, as part of the government’s bailout effort in 2008.

The insurer was also hurt by catastrophe losses of $574 million at Chartis. Additionally, International Lease Finance Corporation, AIG’s aircraft leasing unit, recorded $1.5 billion impairments related to its older generation aircraft, the company said.

“AIG continues to navigate a challenging global economic environment, and our results for the quarter were adversely affected by equity market declines, widening credit spreads, and declining interest rates, as well as property catastrophe losses,” said AIG CEO Robert Benmosche.

“We also took significant impairments at International Lease Finance Corporation, reflecting management’s decision on certain aircraft that would be disposed of prior to the end of their previously estimated life in light of technological developments in the aircraft industry, fleet management announcements by certain airlines, and our newly acquired part-out company.”

“Despite the difficult external environment, we are encouraged by the progress we’ve made and the underlying strength of our core insurance businesses,” CEO Benmosche added.

“Across AIG, we are seeing strong sales momentum as our employees continue to act as trusted partners to our customers, providing them with real value by consistently delivering quality insurance and investment products and services.”

Chartis reported third quarter operating income of $442 million, compared to operating income of $1.1 billion in the third quarter of 2010.

Third quarter results include $574 million of catastrophe losses, including $372 million related to Hurricane Irene, $80 million related to Tropical Storm Lee, and $79 million related to Typhoons Roke and Talas, compared to $72 million in catastrophe losses in the third quarter of 2010.

The third quarter 2011 combined ratio was 106.4, compared to 99.3 in the third quarter of 2010. The current accident year combined ratio, excluding catastrophes, was 99.2, compared to 96.3 in the prior year period.

Results of third quarter 2011 include net adverse prior year development of $62 million (including $7 million of discount amortization), which represents 0.09 percent of the Chartis third quarter held reserves of $71 billion.

Third quarter 2011 net premiums rose 0.7 percent compared to the prior year period, including a 4.2 percent increase from foreign exchange, with premiums in original currencies declining by 3.5 percent.

The company said Chartis continues to implement strategic initiatives to improve its mix of business and enhance capital efficiency, including the restructuring of certain loss-sensitive programs from a retrospectively rated premium structure to a loss reimbursement deductible structure within the casualty insurance business.

Partially offsetting the decrease in premiums from strategic initiatives were continued positive pricing trends, particularly in the U.S. commercial insurance business.

SunAmerica reported operating income of $444 million in the third quarter of 2011, compared to operating income of $1.0 billion in the third quarter of 2010.

Third quarter 2011 results were affected by reduced net investment income driven by a $43 million decline in the fair value of SunAmerica’s holding of Maiden Lane II, a special purpose entity; $97 million of losses related to investments in trusts that hold leased commercial aircraft, and lower partnership income.

Third quarter 2011 variable annuity results were also hurt by higher policyholder benefits expense and higher amortization of deferred policy acquisition costs driven by weaker equity market conditions.