Insurance service provider American International Group Inc (AIG) reported lower-than-expected earnings in the fourth quarter on Thursday after the lower rates of interest and refinancing expensive debt adversely affected the results of the insurer.
The New York-based firm reported a decline of 67 percent in its net income to USD 655 million, or USD 0.46 per share for the fourth quarter that ended December 31, as compared to USD 2 billion, or USD 1.34 per share, a year earlier.
The economists and market analysts on average had forecast earnings of USD1.05 per share in the fourth quarter by the largest commercial insurer in the United States and Canada.
The insurer earned USD1.4 billion, or USD 0.97 per share on an operating basis.
Cathy Seifert, an equity analyst at the S&P Capital IQ, said, “In some respects it was a kitchen sink quarter. They did a lot of cleanup work here.”
On Thursday, the shares of AIG declined 1.6 percent at USD 51.62 after the bell.
The expensive debt was bought back by AIG, leading to an after-tax loss of USD 824 million, or USD 0.58 per diluted share. The operating income was adversely impacted by the compensation discount of lower workers and total adverse reserve development of the previous year.
The company also announced a dividend of USD 0.125 a share and allowed the repurchase of shares worth roughly USD 2.5 billion.
The company’s net premiums earned dropped nearly two percent to USD 5.207 billion in property casualty, and the combined ratio dipped to 103.4 from 108.7, indicating an underwriting profit.
On the personal insurance front, the net premiums earned tumbled five percent to USD 2.926 billion. But the combined ratio showed improvement to 98.7 from 104.3.
If an insurer’s combined ratio is below 100, it means the company is receiving more in premiums compared to the numbers it is paying out in claims.