Insurance giant AIG registers second straight quarterly profit

NEW YORK (AP) — AIG said it was profitable for the second straight quarter as its core insurance operations continue to stabilize after the company’s bailout by the government last year.

American International Group Inc. also said the amount of its government financial assistance dropped four percent during the third quarter. Its results got a lift from the increasing value of investments it still holds that soured last year and helped drive it to the brink of collapse.

While new insurance business stabilized compared with the second quarter, it is still sharply below year-ago figures as the economy remains weak and AIG struggles with its image after being bailed out by the government. A recovery in its core insurance operations is considered vital to AIG repaying the government.

CEO Robert Benmosche warned that earnings will remain choppy as the company executes its restructuring plan.

“We continue to focus on stabilizing and strengthening our businesses, but expect continued volatility in reported results in the coming quarters, due in part to charges related to ongoing restructuring activities,” Benmosche said in a statement.

AIG said it plans to record a $5 billion charge in the fourth quarter as it proceeds with spinning off two major life insurance businesses. The insurer is shedding American International Assurance Co., or AIA, and American Life Insurance Co., also known as ALICO, as it looks to repay the government.

Len Blum, a managing partner at investment bank Westwood Capital, said “there is still tremendous risk” to owning the stock. AIG is still on very shaky footing because of the amount of changes it is undergoing and continued uncertainty about exactly how much it will be able to raise from selling assets, he said.

Blum said the market for selling big businesses like AIG is attempting remains weak because of the struggling economy.

AIG was bailed out in September 2008 by the government as the financial crisis spiraled out of control. The insurer has received aid packages with a total value of more than $182 billion from the government. In return for that financial support, the government received an 80 percent stake in AIG.

The company was undermined not by its traditional insurance businesses, but instead by underwriting risky credit derivatives contracts. A collapse in the value of those contracts was the primary driver of AIG’s near-collapse.

Recovering financial markets and changes in accounting rules have helped AIG write up the value of its remaining risky assets.

Blum said, however, those assets could again lose value or AIG could be forced to take losses as it sells them off. AIG had $1.1 trillion in derivative contracts sitting on its books as of Sept. 30, many of which are tied to risky mortgage debt.

AIG has been working for the past year to sell assets and streamline operations in an effort to repay the government debt. As of Sept. 30, AIG’s outstanding assistance from the government totaled $122.31 billion, down four percent from the end of the second quarter.