American International Group (NYSE: AIG ) announced earnings after the market closed on Monday, and so far the reactions have been mixed. Here are a few of the best quotes from the megainsurer's earnings conference call, aimed at giving investors some more food for thought.
1. "All the regulatory approvals have been received."
The company's sale of its aircraft-leasing division, ILFC, to AerCap is on schedule to close during the second quarter. CEO Robert Benmosche was happy to announce that, barring any unusual closing issues, the deal was going forward as planned.
This is still a big piece of news for the insurer because it represents the one piece of non-core operations left in its slim-down. Upon closing, AIG will get $2.4 billion in cash plus 97.6 million shares in AerCap.
2. "Unfortunately, the best quarter was the first quarter of last year."
Comparisons of AIG's Property & Casualty operations for the first quarter of 2014 to the previous-year period have left analysts and investors a little disappointed, because it shows a 26% drop in pre-tax operating income. Benmosche wanted to give everyone a little bit of perspective: This quarter's results were the second best out of the last 12-quarter period for P&C. It just happens that the best was the first quarter of 2013.
What this should help point out to investors (and analysts) is that each quarter's earnings are part of a bigger picture. While comparing this quarter with the previous year's quarter can be helpful, it can also pigeonhole an otherwise healthy earnings report into the "disappointing" category.
3. "Large personal property issues are difficult to predict."
AIG experienced an anomaly during the first quarter -- three personal property claims more than $10 million. The severe claims helped boost the overall payouts for the quarter, which worsened the picture investors saw when comparing first-quarter results for 2014 and the previous year.
Peter Hancock, AIG's P&C president, stated that the company had only ever experienced a single claim of $10 million or more in a single year, let alone three in a quarter. But on the bright side, Hancock noted that the claims all came from older policies -- meaning that the risk from new policies was not increasing AIG's exposure to new claims.
4. "... a position we've held for the past 18 years."
Jay Wintrob, AIG's Life and Retirement president, had a great quarter -- with new premiums and deposits growing 28% year over year. A large part of that growth was thanks to high demand for retail products, including fixed annuities.
Though interest rates faltered during the first quarter, AIG's fixed-annuities products have seen a resurgence of exposure to clients looking to capture the rising rates. Part of AIG's success in gaining those new clients is its distribution channels through the nation's banks. It is the No. 1 provider of fixed annuities through the bank channel, and has been for nearly two decades.
5. "We were opportunistic and orderly..."
During the quarter, AIG repurchased 17.4 million shares for a total of $867 million. The insurer still has $537 million remaining of its current share buyback authorization, which is a great opportunity to reduce the dilution of its stock further at a 20%+ discount.
But CFO David Herzog wants you to know that the company isn't just going to jump in with both feet on repurchases. In fact, when asked if the $2.4 billion of unencumbered cash from the AerCap/ILFC deal would be put to use in AIG's repurchase plan, both Herzog and Benmosche were quick to say, "We'll see." Though it would be tempting to strengthen its balance sheet further, AIG will remain cautious and calculating when it comes to deploying its cash.
Earnings season is a great time to be an investor. Not only do you get to see how your companies are performing, but you get to hear the top priorities and concerns straight from the horse's mouth. From the AIG conference call, investors got a bit of perspective and a reminder of the company's solid footing and clear-headed management.
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