Insurance giant American International Group (AIG) posted disappointing fourth quarter earnings results on Thursday. AIG failed to meet Wall Street projections with profit that fell 67%.
AIG did report a $2.5 billion buyback, although shares of its stock slipped during Thursday’s after-hours trading.
On Thursday, AIG reported $655 million ($0.46 per share) in fourth quarter net income, a drop of 67% over net income last year. The massive decline was largely attributed to ending debt during the quarter and costs related to boosting the company’s reserves. Excluding special items, AIG posted $1.4 billion in fourth quarter net income, or $0.97 per share, according to Forbes.
Analysts expected earnings of $1.05 per share.
[quote text_size=”small” author=”– Peter Hancock” author_title=”AIG President and CEO”]
Our fourth quarter results showed progress on expense control, ongoing investments in our business, and our commitment to balance sheet management. AIG’s diversified and balanced business mix allowed for stable total insurance profits. We continued to optimize our funding profile by replacing high-cost legacy debt with new issuances at lower interest rates.
AIG bought back expensive debt that caused an after-tax loss of $824 million, or $0.58 per diluted share. Operating income was further hampered by lower workers’ compensation discount and adverse prior-year reserve development.
AIG chief executive officer Peter Hancock has been attempting to improve results since he took over in September 2014. The fourth quarter is the first full quarter under Hancock, who was previously the head of AIG’s property-casualty business. AIG has been issuing new bonds at lower interest to repay high-cost debts, and the company took a $824 million charge related to those efforts, the New Hampshire Voice reported.
In a memo to employees that Reuters obtained, Hancock said AIG purposefully refinanced debt, “understanding that there would be a short-term impact to earnings, because we knew that the positive earnings impact over the longer term would be better for stakeholders.”
With interest rates remaining near zero, bond investors and insurance companies like AIG have had difficulty achieving strong returns.