Retirement and Personal Expected to Push AIG’s Consumer Division

Consumer insurance division

American International Group’s (AIG) consumer finance business recorded an 18% fall in pre-tax operating earnings in 4Q15. The division’s pre-tax operating income fell to $753 million compared to $923 million in 4Q14. However, in the first quarter of 2016, net investment income is expected to improve on the back of improved credit. Retirement is expected to see more business.

Retirement and Personal Expected to Push AIG’s Consumer Division

In the December quarter, the fall was primarily due to lower net investment income due to the negative performance of alternative investments in hedge funds and a lower underwriting income in personal insurance. AIG benefited from growth in Japan. This led to an increase in life premiums and deposits as well as personal insurance net premiums when compared to the prior-year quarter.

AIG is working on expense management in order to boost its bottom line. Insurance companies such as MetLife (MET) and Hartford Financial Services Group (HIG) are also 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).

Retirement and life

AIG’s life insurance division saw pre-tax operating income at $180 million compared to an operating profit of $80 million in 4Q14. This rise was mainly due to a $104 million charge in 4Q14 to increase reserves for incurred but not reported death claims for a legacy block of small policies related to enhanced claims practices. The division’s premiums and deposits, excluding the foreign exchange impact, rose by 5% due to growth in Japan and the acquisition of AIG Life Limited.

AIG’s retirement insurance division saw pre-tax operating earnings of $600 million in 4Q15, a fall of 17%. The fall was primarily due to lower net investment income from alternative investments, partially offset by growth in variable annuity fee income. The segment’s premiums and deposits rose 17% to $7.0 billion due primarily to growth in sales of index annuities and mutual funds. It was also due to improved fixed annuities sales due to increases in Market interest rates compared to the prior-year quarter.

Personal insurance

AIG’s personal insurance division reported a pre-tax operating loss of $32 million in 4Q15 compared to a pre-tax operating income of $121 million in 4Q14. This was primarily due to a decline in underwriting results and a decrease in net investment income. Its combined ratio rose to 102.7. Its loss ratio and accident year loss ratio rose by 4.4 points and 1.7 points to 55.6 and 53.8, respectively, compared to 4Q14.

In the next part of this series, we’ll look at AIG’s commercial insurance and whether it will have a profit in 1Q16.