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Benmosche comments on AIG earnings

American International Group (AIG) officials said Friday that its life and retirement business achieved its highest level of sales in the company's history.

AIG Life and Health CEO Jay Wintrob said the unit “continues to experience strong sales momentum, and that all product lines “contributed to this favorable trend.”

Wintrob said the majority of the improvement was driven by the increase in fixed annuity sales and continued strength of variable annuities and retail mutual fund activity.

Wintrob made his comments on the company’s earnings conference call. Late yesterday, the company reported net income attributable to AIG of $2.2 billion for the quarter ended September 30, 2013, compared to $1.9 billion for the third quarter of 2012.

Life and retirement earnings were about $1.14 billion, reflecting continued disciplined spread management and lower alternative investment returns, offset by net favorable DAC unlocking from the annual assumption review, said AIG president and CEO Robert Benmosche. Total life and retirement premiums and deposits were “very strong,” totaling $8.4 billion.

In the conference call, Benmosche tried to tamp down expectations that AIG will be able to meet all the goals for 2015 that the company had outlined when it offered stock to the public again in May 2011.

Benmosche called the company’s results “solid,” but in comments consistent with Benmosche’s efforts to drive down future expectations, Keefe Bruyette Wood’s Meyer Shelds called the results “disappointing.” He said AIG sought to match investor expectations by relying on favorable tax settlements. Shields said lower-than-expected taxes increased income by 14 cents a share.

The company also disclosed that it is integrating its Japanese operations, which it said was its largest property and casualty consumer operation, and that it strongest hope for growth in the Japanese market were sales of life and retirement products.

On the expectations issue, Benmosche said the company will seek to achieve its previously-outlined goals, but we cannot commit ourselves to saying that we will meet all of them by 2015.

In the company’s 2011 annual report, Benmosche said “our over-arching aspirational goals by the end of 2015 are to achieve a return on equity above 10 percent and annual earnings per share growth in the mid-teens. 

He said those goals were outlined at a time when “there was some serious concern in the marketplace, could AIG survive and continue to grow and thrive? And we put together some key points that we felt we needed to all work towards to give you the confidence that we can, in fact, return to [being] a very strong company.”

In answering an analyst’s question at the conference call today, Benmosche said he did not mean to imply that meeting those goals were at risk.

“We’ve discussed a whole lot of things one would have to do once we get closer. Because look, if I could tell you exactly what I could be, at exactly a point in time, I think I would have problems with some of the people in Washington in the enforcement group, because you can’t run this business with that degree of accuracy, and you all know that.”

Wintrob said that sales increased across all retail investment products, from both the prior quarter and the year ago period. He said surrender rates also declined sequentially across all product lines. Individual variable annuity and retail mutual fund sales momentum continued, reaching $2.4 billion and $1.6 billion, respectively, for the quarter, he said.

“We also saw meaningful acceleration in fixed annuity sales, which reached nearly $1.2 billion in the quarter,’" Wintrob said. He also mentioned growth in institutional premiums and deposits was driven by a midsized pension buyout case and a large group retirement plan takeover in the quarter.

“Additionally, we closed on $5.3 billion of stable value wrap business in the quarter, bringing total stable value wrap assets under management to approximately $19 billion at the end of the quarter,” Wintrob said, adding that net interest income declined 5 percent in the quarter, largely due to lower than expected alternative investment returns and the continuing impact of reinvesting at rates below our current portfolio yields.

In answer to a question, Peter Hancock, CEO of AIG’s P&C operations, said that AIG was consolidating its Japanese businesses, which comprises a large part of AIG’s personal lines P&C business. Hancock said Japan is, “by far, the largest consumer operation we have,” and it is a “large and stable book-of-business, but it's not growing that fast, obviously, with the demographics in Japan as they are.”

At the same time, Hancock said, “The one exception is the excitement we have about Fuji Life, and so we see good growth there as we rebuild the life business, taking advantage of the aging population in Japan.”

He said the company is integrating its Fuji Fire and Marine with its AIU business, which will reduce overhead costs, as well as an integration of many capabilities that will improve the expense picture on the whole.

AIU Insurance Company, Ltd. started business in Japan in 1946 as a general insurance company. As of April, AIU Insurance Company, Japan Branch, has locally incorporated and started business as AIU Insurance Company, Ltd. AIG said at the time that “AIU will continue to use AIG's worldwide network and overseas market experience, as well as its long proven track record in Japan, to provide customers with reliable insurance products and services.”

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