American International Group Inc. posted its fourth loss in six quarters, burned again by higher-than-expected claims costs as Chief Executive Officer Peter Hancock struggles to sustain profitability.
The net loss widened to $3.04 billion, or $2.96 a share, from a $1.84 billion, or $1.50, a year earlier, the New York-based insurer said Tuesday in a statement. The fourth quarter’s operating loss, which excludes some investment results, was $2.72 a share, missing the average estimate in a survey of 18 analysts for a profit of 42 cents.
Hancock is seeking to stabilize results by being more selective about the risks that AIG takes through both insurance underwriting and investing. He has been selling units to free up cash for shareholder buybacks and to simplify the company while focusing on the increased use of analytics to gain an edge in specialized lines, such as guarding commercial clients against cyber breaches.
“We took decisive actions in 2016 to dramatically reduce uncertainty and deliver higher quality, more sustainable earnings in the future,” Hancock said in the statement. He reiterated the two-year goal from January 2016 to return $25 billion to shareholders, adding that the commitment is “subject to regulatory and rating agency considerations and future profitability improvements.”
AIG fell 4.3 percent to $64 in extended trading at 4:59 p.m. in New York. The shares had climbed 2.4 percent this year by the close of regular trading in New York, compared with a 4.4 percent rally in the S&P 500. The insurer also trailed the index in 2016. Results were released after the close of regular trading.
AIG also announced that it increased its buyback authorization by $3.5 billion to $4.7 billion. The company repurchased more than $11 billion of stock in 2016 and another $1.2 billion this year through Tuesday, according to the statement.
S&P Global Ratings downgraded the company on Jan. 31, citing ” operational challenges” after Hancock announced earlier in the month that there was a reserve shortfall in the fourth quarter, without specifying the size of the gap. On Tuesday, the company reported a charge of $5.6 billion due to swelling claims at the commercial insurance unit.
The insurer has been suffering for years on contracts tied to workers’ compensation, commercial-vehicle coverage. Hancock announced Jan. 20 that AIG would pay about $10 billion to Warren Buffett’s Berkshire Hathaway Inc. to assume risks of further losses on some of those policies. The company said that reinsurance deal could generate a pretax gain of about $2.6 billion in the first quarter of this year.
Normalized return on equity was 4.8 percent for the fourth quarter, down from 6.6 percent in the last three months of 2015. For the full year, the figure climbed to 7.5 percent from about 6.9 percent. Hancock has announced a target of 9 percent for 2017. Investor Carl Icahn had faulted the CEO for failing to hit 10 percent, before the activist billionaire’s firm won board representation last year.
Hancock became CEO in late 2014 after previously running the property-and-casualty business since 2011.
Book value, a measure of assets minus liabilities, was $76.66 a share at the end of December, compared with $85.02 three months earlier. Large insurers including MetLife Inc. and Prudential Financial Inc. endured declines in the period as higher interest rates pushed down the market price of bond holdings.
The pretax operating loss at the commercial unit run by Rob Schimek widened to $5.02 billion from $2.43 billion a year earlier, pressured by the reserve charge. The division under Schimek has been shrinking, partly through reinsurance deals and also through sales of assets such as a mortgage guarantor and businesses in Brazil and Turkey. Policy sales dropped 20 percent to $3.7 billion.
At the individual retirement business overseen by Consumer Insurance CEO Kevin Hogan, pretax operating profit advanced 37 percent to $542 million, while group retirement rose to $261 million, from $228 million. The life segment posted a loss of $10 million, compared with a profit of $24 million in the last period of 2015. The contribution from personal insurance was $176 million, compared with a $27 million loss in the year-earlier period.
Net investment income, which includes results from various units on a bond-dominated portfolio, climbed 13 percent to $3.59 billion from $3.18 billion, according to a supplemental filing on AIG’s website. Chief Investment Officer Doug Dachille last year slashed some poorly performing hedge fund holdings and shifted funds to wagers on U.S. mortgages.
Private equity and hedge funds combined contributed $314 million.