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AIG Sees Contraction in Consumer Finance Division in 2Q15

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Consumer finance division

AIG’s (AIG) consumer finance business recorded a 9% decline in pre-tax operating earnings in 2Q15. The division’s pre-tax operating income declined to $1.0 billion, compared with $1.1 billion in 2Q14. The decline was primarily due to lower base net investment income and mortality experience in its life insurance division that was less favorable than in the same quarter the year before.

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Retirement division

AIG’s retirement division saw pre-tax operating earnings of $804 million in 2Q15, compared with $764 million in 2Q14. The growth was primarily due to higher net investment income from strong alternative investment performance. This growth also resulted from higher policy and advisory fees that were driven by growth in separate account assets under management in retirement, as compared with 2Q14.

Life division

In 2Q15, AIG’s life division pre-tax operating income of $149 million fell compared with 2Q14, mainly due to mortality experience that was within pricing assumptions. However, it was less favorable compared with 2Q14, partially offset by strong performance from alternative investments. The company is focusing on acquisitions for expansion, which led to increases in other income and general operating expenses.

Personal insurance

Personal insurance reported a pre-tax operating income of $70 million in 2Q15, compared with pre-tax operating income of $140 million in 2Q14, primarily due to decreases in net investment income and underwriting income. The combined ratio increased marginally to 99.7. The loss ratio and accident year loss ratio decreased by 0.8 points and 0.6 points to 52.7 and 52.8, respectively, compared with 2Q14.

AIG is working on expense management in order to boost the company’s bottom line. Insurance companies such as MetLife (MET) and The Hartford Financial Services Group (HIG) are focusing on reducing their operating expenses to improve profitability.

Investors can gain exposure to insurance companies by investing in financial sector exchange-traded funds such as the Financial Select Sector SPDR ETF (XLF) and the iShares US Financials ETF (IYF).

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