Earnings Preview: AIG expected to post loss in 1Q
NEW YORK—American International Group Inc. is slated to report results for the first quarter after the closing bell rings Thursday. Following is a summary of key developments and analyst commentary related to the period.
OVERVIEW: AIG, the world's biggest insurer, has been losing a lot of money recently. The New York-based company lost $5.29 billion in the fourth quarter, and is believed to have lost money in the first quarter.
The company's losses stem from three areas. The most notable one is a book of contracts known as credit-default swaps, which promise to cover losses on $579 billion in bonds or other kinds of debt.
AIG reported $11.12 billion in losses on these swaps during the fourth quarter.
The second area is its investment portfolio, which has some bonds backed by mortgages and other shaky credit. The company booked $3 billion in losses on this portfolio in the fourth quarter.
The third problem area is the company's mortgage insurance business, United Guaranty. With home prices sagging, more consumers are defaulting on their mortgages, forcing United Guaranty to pay more claims.
BY THE NUMBERS: Analysts polled by Thomson Financial forecast a loss of 76 cents per share in the first quarter.
ANALYST TAKE: Friedman Billings Ramsey analyst Bijan Moazami expects AIG to book a $12.7 billion loss on the credit swap portfolio and $10 billion in losses on its investment portfolio.
Wachovia Capital Markets analyst John Hall expects premiums to grow 1 percent to $12.3 billion.
Insurers across the industry are slashing premium rates, which makes it difficult to grow premiums without accepting unwise risks.
WHAT'S AHEAD: AIG insists its losses are only on paper, but the company could be forced to raise more cash, Moazami said. Even though the accounting rules sometimes provide a "preposterous" portrayal of a company's finances, AIG may have to bolster its capital to meet requirements with the ratings agencies, he said.
SHARE PERFORMANCE: AIG's stock tumbled 26 percent during the first quarter to close March at $43.25. The stock has lost a third of its value in the past year.
