AIG reports $1.5 billion first-quarter profit; outlook improves for loan repayment

By Jia Lynn Yang
Washington Post Staff Writer
Saturday, May 8, 2010

Bailout recipient American International Group reported a profit Thursday for the third time in four quarters, improving odds that taxpayers will see at least some of their money returned by the insurance giant.

AIG, which is still nearly 80 percent government-owned, reported first-quarter earnings of $1.5 billion compared with a loss of $4.4 billion in the corresponding period last year. The latest results are a far cry from last March when AIG reported the worst annual earnings of any U.S. company in history.

"Things are moving in the right direction," said Bill Bergman, a senior analyst at Morningstar.

AIG's outlook rose in part because the entire insurance industry is benefiting from stronger credit markets. Consumers have also become more willing to open their wallets and purchase coverage plans.

Still, the company remains on the hook for $182 billion of assistance from the Federal Reserve and Treasury. And AIG continues to borrow from the government: Last month, it increased its credit line with the Federal Reserve Bank of New York by $1.5 billion.

Under the Troubled Assets Relief Program, the Treasury offered $70 billion to AIG. As of the Treasury's April report on TARP, AIG -- unlike the banks or the auto industry -- had not repaid any of that money. In January, the Congressional Budget Office estimated that the total cost to the Treasury of rescuing AIG will be $9 billion.

To raise cash, chief executive Robert H. Benmosche has been trying to spin off units. In March, AIG said it was selling its American Life Insurance division for $15.5 billion to MetLife, along with its Asia-based life unit, American International Assurance, to British-owned Prudential PLC for $35.5 billion. Since the announcement, however, the second deal has been stalled by regulatory delays in Britain.

Another roadblock, analysts said, is AIG's crushing load of debt. Cliff Gallant, an analyst at Keefe, Bruyette & Woods, released a report last month comparing the capital structure of AIG with the industry norm. A typical insurer holds 75 percent equity and 25 percent debt. AIG has just 11 percent equity and 89 percent debt.

"They certainly owe more money than they're making," Bergman said.

In a report last month, the Government Accountability Office called AIG's financial condition "relatively stable" but pointed out myriad factors at play in the company's future, including some that are outside the control of AIG or the government. For instance, the company's investment holdings depend on the health of the stock market, which excelled during the first quarter but has suddenly become volatile.

"The great unknown is the degree to which they continue to show improvement," said Catherine Seifert, an insurance analyst at Standard & Poor's. "There's a lot of uncertainty."

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