10-QPeriod: Q1 FY2011

AMERICAN INTERNATIONAL GROUP, INC. Quarterly Report for Q1 Ended Mar 31, 2011

Filed May 5, 2011For Securities:AIG

Summary

American International Group, Inc. (AIG) reported a net income of $269 million for the first quarter of 2011, a significant decrease from $1.783 billion in the same period of 2010. This decline was heavily influenced by a substantial $3.3 billion loss on extinguishment of debt related to the repayment of the Federal Reserve Bank of New York credit facility, a key component of AIG's recapitalization efforts. Despite the reported net loss, the company has made substantial progress in its restructuring and deleveraging initiatives. This includes the completion of a major recapitalization on January 14, 2011, which involved repaying the FRBNY credit facility and exchanging preferred stock with the Treasury for AIG common stock. Additionally, AIG continued to execute its asset disposition plan with the sale of its Japanese life insurance subsidiaries and MetLife securities, generating significant proceeds used to further reduce debt and preferred interests held by the Department of the Treasury. Chartis, AIG's property and casualty business, experienced a significant underwriting loss primarily due to catastrophe losses, notably the Tohoku earthquake and tsunami, which resulted in $1.3 billion in claims. SunAmerica and Financial Services segments showed improved operating income and pre-tax income, respectively. SunAmerica's retirement services business saw strong deposit growth, while Financial Services benefited from lower aircraft impairment charges and improved Capital Markets derivative valuations. Investors should note the significant impact of ongoing divestitures and restructuring on AIG's reported earnings, with a focus on the core operational performance of its continuing businesses.

Financial Highlights

25 data points
Beta

Revenue

$16.28B

Net Income

$1.30B

8.0% Net Margin

Total Assets

$611.25B

Cash & Equivalents

$1.80B

Free Cash Flow

-$5.31B

Financial Statements
Beta
Revenue$16.28B
SG&A Expenses$1.97B
Operating Income-$1.28B
Interest Expense$1.06B
Net Income$1.30B
Shares Outstanding (Basic)1.56B
Shares Outstanding (Diluted)1.56B

Key Highlights

  • 1Net income decreased to $269 million in Q1 2011 from $1.783 billion in Q1 2010, largely due to a $3.3 billion loss on debt extinguishment.
  • 2Completed a significant recapitalization on January 14, 2011, including repaying the FRBNY credit facility and exchanging preferred stock for common stock.
  • 3Continued asset disposition with the sale of Japanese life insurance subsidiaries and MetLife securities, generating proceeds to reduce debt.
  • 4Chartis, the property and casualty segment, reported an underwriting loss of $1.642 billion, heavily impacted by $1.727 billion in catastrophe-related charges, including $1.3 billion from the Tohoku Earthquake and Tsunami.
  • 5SunAmerica's retirement services business saw strong deposit growth, contributing to an increase in operating income.
  • 6Financial Services segment reported pre-tax income of $325 million, an improvement from a $202 million loss in the prior year, driven by lower aircraft leasing charges and improved Capital Markets derivative valuations.
  • 7AIG's total assets decreased to $611.2 billion from $683.4 billion at the end of 2010, largely due to asset dispositions and the impact of the recapitalization.

Frequently Asked Questions

The primary driver for the decrease in net income was a $3.3 billion loss on extinguishment of debt recorded in the first quarter of 2011. This loss is primarily attributed to the accelerated amortization of a prepaid commitment fee asset resulting from the termination of the Federal Reserve Bank of New York credit facility as part of AIG's recapitalization efforts.

The recapitalization, completed on January 14, 2011, significantly altered AIG's financial structure. It involved repaying the $20.7 billion FRBNY credit facility, exchanging preferred stock held by the Treasury for AIG common stock, and utilizing proceeds from asset sales (AIA IPO, ALICO sale) to partially repay preferred interests in special purpose vehicles held by the Treasury. These actions reduced AIG's debt burden and its reliance on government support.

The Tohoku Catastrophe in Japan resulted in significant catastrophe losses for AIG's Chartis segment, totaling $1.727 billion for the first quarter of 2011. Of this amount, $1.3 billion was directly attributed to the earthquake and tsunami event, impacting the underwriting results of Chartis International and, to a lesser extent, Chartis U.S. due to reinsurance arrangements.

SunAmerica's retirement services business showed positive momentum with strong deposit growth, particularly in fixed annuities, and an increase in variable annuity sales as distribution partners resumed activity. Financial Services benefited from improved aircraft leasing results due to lower impairment charges and positive valuation changes in its Capital Markets derivative portfolios, leading to a pre-tax profit.