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American International’s Consumer Insurance Earnings Fell in 3Q15

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Nov. 24 2015, Published 5:23 p.m. ET

Consumer insurance division

American International Group’s (AIG) consumer finance business recorded a 48% fall in pre-tax operating earnings in 3Q15. The division’s pre-tax operating income fell to $657 million, compared with $1.3 billion in 3Q14.

The fall was primarily due to lower net investment income due to the negative performance of alternative investments in hedge funds, lower bond call, and tender income. The company also saw a negative adjustment of $17 million to reserve items as compared to a positive adjustment of $121 million in 3Q14.

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Retirement division

AIG’s retirement insurance division saw pre-tax operating earnings of $635 million in 3Q15, a fall of 42%. The fall was primarily due to lower net investment income from alternative investments.

The division was also impacted by lower positive adjustments to reserve items in 3Q15 when compared with the prior year’s quarter. Premiums for retirement fell by 45% to $37 million.

Life division

AIG’s life insurance division saw a pre-tax operating loss at $40 million compared with an operating profit of $50 million in 3Q14. This fall was mainly due to lower investment income and negative adjustments.

The division’s premium rose by 3%, partially offsetting a fall in investment income of 10%. Additions to reserves for universal life with secondary guarantees, based on lower surrender rates, resulted in a net negative adjustment of $157 million.

Personal insurance

AIG’s personal insurance division reported a pre-tax operating income of $62 million in 3Q15, compared with a pre-tax operating income of $120 million in 3Q14, primarily due to falls in net investment income and underwriting income. Its combined ratio rose marginally to 99.6. Its loss ratio and accident year loss ratio rose by 0.4 points and 0.3 points to 53.4 and 53.0, respectively, compared with 3Q14.

AIG is working on expense management in order to boost its 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 ETFs such as the Financial Select Sector SPDR ETF (XLF) and the Vanguard Dividend Appreciation ETF (VIG).

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