By Leslie Scism
American International Group Inc. posted a 17% decline in second-quarter net income, weighed down by a $200 million pretax restructuring charge, lower investment income and another weak showing for its big business of selling property-casualty policies to corporate clients.
AIG's overall net profit sank to $937 million as the turnaround effort of Chief Executive Brian Duperreault passed the one-year mark. AIG, which has about 50,000 employees, said the restructuring charge is related to efficiency initiatives, without elaborating further.
Since his arrival, Mr. Duperreault has talked about the need to reduce expenses as part of a broader turnaround program. Adding to cost pressures has been a wave of hiring of experienced industry managers in recent months, as Mr. Duperreault seeks to improve basics such as selecting insurance risks that can be properly priced to turn a profit.
At the same time, the global company faces a competitive pricing environment for property-casualty insurance that limits price increases.
AIG posted a 34% decline in its closely watched adjusted operating results, which strip out realized capital gains and losses in insurers' big investment portfolios and other items judged nonrecurring, such as the restructuring charge. Analysts monitor such adjusted results as a measure of the health of continuing operations.
AIG's adjusted profit of $961 million, or $1.05 a share, missed analysts' consensus forecast of $1.19 a share, as surveyed by Zack's Investment Research, and was down from $1.53 a share in the year-earlier period.
Much of the decline came from AIG's globe-straddling Total General Insurance unit, which focuses primarily on insuring business clients. It posted a 46% decline in adjusted pretax profit to $568 million. AIG also has a large life-insurance and retirement-products unit. It produced another quarter of solid results with a modest increase in premiums and fees, though its pretax profit slipped 3% to $962 million.
"In the second quarter, we continued to take actions across General Insurance to establish a culture of underwriting excellence and added stellar talent," Mr. Duperreault said in the earnings release. "Our efforts are taking hold and we remain committed to achieving an underwriting profit as we exit 2018."
For the quarter, AIG cited a 12% decline in investment income to $3.1 billion. This was primarily driven by lower income from hedge funds, private-equity holdings and other so-called alternative investments that are made with a slice of the premium it deploys into capital markets until needed to pay claims.
AIG attributed an increase in its year-over-year expense ratio to a change in business mix that included higher commissions as well as "strategic initiatives" to improve underwriting results and simplify the company's organization.
AIG's turnaround has been under way since the company in 2012 wrapped up repaying its 2008 federal-government financial-crisis rescue package, which ultimately topped $182 billion. That is when investors began pressing management to eliminate the gap between AIG's results and the higher profit margins that many rivals routinely report.
To raise money to repay U.S. taxpayers, AIG had shrunk by roughly half to $500 billion in total assets as it sold many crown-jewel operations. It was left with a hodgepodge of businesses in some parts of the world.
Mr. Duperreault arrived in May 2017 after efforts to rev up financial results stalled under former CEO Peter Hancock.
Last month, AIG closed on the $5.56 billion acquisition of Bermuda-based Validus Holdings Ltd. in one of Mr. Duperreault's first efforts to deliver on his promise to put AIG on a growth path again. The deal adds a Lloyd's operation in London, crop insurance and reinsurance, among other things, and will figure into third-quarter results.