AIG Reports Better-Than-Expected Quarterly Profits

American Int’l Group, Inc. (AIG), the insurer that has received $182.3 billion of federal aid and is now 80% owned by U.S. taxpayers, posted its second straight quarterly profit on Friday.

Third-quarter results showed a net income of $455 million, or 68 cents a share compared with a net loss of $24.47 billion, or a reverse split-adjusted $181.02 a share, in the quarter a year ago, New York-based AIG said today in a regulatory filing. Excluding investments and the government’s stake, AIG’s adjusted third-quarter profit was $1.9 billion, or $2.85 a share.  Analysts were expecting earnings of $1.98 a share. Meanwhile, shareholders’ equity rose 25% to $72.7 billion from $58 billion on June 30.

The latest results “reflect continued stabilization in performance and market trends,” AIG Chief Executive Robert Benmosche said in a statement. Benmosche however, after pointing out that business retention was at its highest level since September of 2008 with new business written exceeded $1.1 billion for the quarter, said that continued volatility in the coming quarters is to be expected. That makes sense considering AIG’s ratio of earnings to payouts, which is quite bad. The insurer essentially paid out $1.05 for every dollar it took in.

AIG said its general insurance operations reported net premiums written of $8.1 billion in the third quarter of 2009, a 13% decline compared to last year’s third quarter. Life insurance and retirement services came in at $7.9 billion, down 16.1% from the third quarter 2008 but relatively flat with the first two quarters of 2009, as businesses continue to stabilize.

The company also said it cut AIG FP’s derivative portfolio by 13% in the quarter to about $1.1 trillion. The derivatives business posted operating income of about $1.4 billion as many of the securities in the co.’s portfolio rebounded compared with a loss of $8.3 billion a year earlier. The downside on that operating income is that nearly a billion of this is unrealized gains because these securities are still in AIG’s credit-default swap portfolio.

Realized losses on investments narrowed to $1.8 billion from $15.1 billion a year earlier as the markets for corporate debt and mortgage-backed securities improved.

All told, AIG’s progress from this point forward depends primarily on how the economy will perform, along with the hope that the government doesn’t pull the plug.

The stock is currently getting hammered, trading down nearly $3.76, or 10%, at about $35.53.

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