American International Group Inc.’s first-quarter net income fell, but its closely watched adjusted operating results jumped 44% as a core unit posted long-awaited improvement.
The recovery in that main unit is a positive development for AIG’s Chief Executive Officer Brian Duperreault, who was hired two years ago to turn around one of the world’s biggest sellers of insurance. Mr. Duperreault has focused heavily on an overhaul of the core “General Insurance” unit, hiring many new and experienced executives from outside the company.
AIG nearly collapsed during the 2008 financial crisis and was bailed out by the federal government. Since repaying the U.S. in 2012, it has struggled to compete with its peers.
In the first quarter, AIG’s net income fell 30% to $654 million from $938 million, but that was largely triggered by gains in an investment held by a reinsurance, claims-handling and management-services unit called Fortitude Group Holdings LLC. Last year, AIG sold a 19.9% stake in the unit to Carlyle Group and in this quarter had to adjust its net income to reflect that some of the gain is now attributable to Carlyle.
The bright spot was adjusted after-tax income, which is the benchmark followed by Wall Street analysts and investors. That increased to $1.39 billion, or $1.58 a share, from $963 million, or $1.04 a share. The results beat Wall Street’s consensus expectation of $1.06 a share as adjusted. Adjusted results exclude realized capital gains and losses and items deemed non-recurring.
AIG said the improvement on an operating basis was driven by better underwriting; expense cuts; a different business mix stemming from two acquisitions by Mr. Duperreault; and increased use of reinsurance, which is a way for insurers that sell policies to individuals and businesses to lay off some of the risk in those policies.
AIG, which has a large business insuring homes, vehicles and other possessions of wealthy people, also benefited from a smaller volume of catastrophe claims and higher net investment income on the premiums it invests until needed to pay claims. While insurers primarily invest in high-quality bonds, favorable performance in the equity markets helped to lift results in AIG’s life and retirement business, where there are products with stock-market exposure.
In recent quarters, AIG’s results have been slammed by California wildfires and mudslides, Hurricanes Michael and Florence, Asian typhoons and charges to bolster older claims reserves. Mr. Duperreault has faced a tough challenge to deliver the robust growth he did at other companies previously, including as chief executive at Marsh & McLennan Cos. Inc. from 2008 to 2012.
In many recent quarters, AIG’s core business sent more money out the door in claims and expenses than it collected in premiums, despite a cost-reduction effort.
But this time, AIG’s Total General Insurance business sent 97.4 cents of every $1 of premium out the door in claims and related expenses. That was down from $1.04 in the year-earlier quarter, under one common method of calculating the metric.
In the earnings release, Mr. Duperreault said the results reflected “significant foundational work throughout 2018 to position AIG for sustainable, profitable growth.”