American International Group Inc. (AIG:US), the insurer that counts the U.S. as its largest shareholder, had the biggest decline in the 81-company Standard & Poor’s 500 Financials Index as premium revenue slipped at its main units.
AIG slid (AIG:US) 7.2 percent to $32.68 at 4 p.m. in New York trading, its biggest plunge since August, 2011. The company has advanced about 41 percent this year as the U.S. sold most of its stake accumulated from a 2008 rescue.
Chief Executive Officer Robert Benmosche is working to improve results at the Chartis property-casualty and SunAmerica life insurers to attract private shareholders as the U.S. seeks to exit. Third-quarter premium revenue at Chartis fell 3.2 percent, and the company spent $1.05 on claims and expenses for every premium dollar collected. At SunAmerica, premiums, deposits and other considerations slid about 19 percent.
“Both AIG Property Casualty and AIG Life and Retirement modestly underperformed,” Meyer Shields, an analyst at Stifel Nicolaus & Co., wrote in a research note today.
The insurer reported profit of $1.86 billion late yesterday, driven by investment results. AIG’s stake in Hong Kong-based insurer AIA Group Ltd. (1299) added $527 million to profit and gains from a vehicle that held mortgage bonds from AIG’s rescue contributed $330 million.
“The firm’s earnings were largely driven by mark-to-market gains,” Josh Stirling, an analyst at Sanford C. Bernstein & Co., wrote in a research note. “The relatively modest current core earnings power is why AIG trades at half of book value -- and expanding the profitability of Chartis is what will lead them to trade for more.”
Stirling said investors may also be concerned about AIG’s exposure to losses from Hurricane Sandy. The superstorm lashed New Jersey and flooded parts of New York this week. Catastrophe modeler Eqecat Inc. said industrywide insured losses may reach $20 billion. AIG said it’s too early to estimate its losses on the storm.
“Facing the unknowns from the historic flooding in lower Manhattan, we believe AIG’s exposure to Sandy is likely to give most investors pause,” Stirling wrote. “We believe investors will be well served being cautious.”
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