Benmosche May Limit AIG Death-Benefit Bets After Impairment
August 05, 2011, 4:30 PM EDTBy Noah Buhayar
(Updates share decline in 10th paragraph.)
Aug. 5 (Bloomberg) -- American International Group Inc., the company 77 percent owned by the U.S. Treasury Department, may limit investments linked to life insurance policies after booking an impairment on the assets in the second quarter.
“This is not an area that we’re going to be emphasizing going forward,” Chief Executive Officer Robert Benmosche said today on a conference call with analysts. “We’re just thinking about how to deal with it.”
So-called life settlements at AIG’s Chartis property- casualty insurance unit had a carrying value of $4 billion as of June 30, according to a regulatory filing yesterday. The assets allow investors to buy insurance policies from individuals and pay the premiums until that person dies. Investors then receive the death benefits.
Chartis recorded a $185 million impairment after updating its process for evaluating insured individuals’ health, according to the filing. The longer a person lives, the less profitable the arrangement is for the investor. AIG has “increased scrutiny” of the assets, Peter Hancock, CEO of Chartis, said on the call. For the first six months, the impairment was $254 million.
“I would not expect charges of this magnitude going forward,” Hancock said. “On the other hand, I would not expect it to be zero either.”
Chartis held 5,819 life settlement contracts as of June 30, according to the filing. Mark Herr, a spokesman for AIG, didn’t immediately return a message seeking comment.
Secondary Market
The secondary market for U.S. life settlements began in the 1980s when the AIDS epidemic led some patients to sell their insurance policies to pay for treatment. The industry was valued at $2 billion in 2001 and, once it became regulated, grew to a maturity value of $35 billion by 2009, according to Conning & Co., a Hartford, Connecticut-based research firm.
Benmosche, 67, is reshaping New York-based AIG’s investment portfolio to boost returns as he attracts private investors to replace the Treasury’s majority stake. The insurer added to holdings of residential mortgage-backed securities and cut municipal bonds in its $249.4 billion fixed-income portfolio in the second quarter.
Net income in the period was $1.84 billion, compared with a loss of $2.66 billion a year earlier when the bailed-out company took charges tied to discontinued operations.
AIG dropped $1.30, or 4.9 percent, to $25.10 at 4:01 p.m. in New York Stock Exchange composite trading, the lowest since March of last year, as operating profit declined at Chartis and the SunAmerica life business, the company’s largest units. The stock has declined by almost half this year.
Bailed Out
AIG was first rescued in September 2008 after losses on housing-market bets by the Financial Products unit. The bailout was revised at least four times, swelling to $182.3 billion, to extend more credit and lower the interest charged.
AIG repaid the last $21 billion it owed the New York Fed and the Treasury converted its preferred stake into common stock in January. The holding was reduced in May when the government and AIG raised $8.7 billion in a share sale.
--With assistance from Brooke Sutherland in New York. Editors: Dan Kraut, Steve Dickson
To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net
To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net
