AIG is set to record its lowest second-quarter profit since its taxpayer bailout in 2008, putting further pressure on chief executive Peter Hancock after he defied calls from activist investors to break up the US insurer.
Wall Street analysts have cut earnings estimates for AIG by a third over the past year, underlining how persistently low interest rates are damaging the fortunes of the insurance sector.
Hartford Financial Services last week set a downbeat tone for the sector’s earnings season after its net income dropped by almost half. The fifth-biggest US insurer by assets cited “increasingly aggressive” competition and a squeeze on investment income. Shares tumbled 9 per cent on Friday.
Life insurers MetLife and Prudential Financial are expected to follow up this week with declines in adjusted net income of about 15 per cent at both companies.
AIG is forecast to have produced adjusted net income, which strips out one-time items, of $1.09bn in the second quarter, according to Bloomberg data. That is down more than two-fifths from a year ago and the lowest since 2008.
Since the crisis, AIG has slimmed down radically, getting out of businesses from aircraft leasing to consumer finance and shedding more than $90bn of assets. The insurer employs about 65,000, down from about 120,000 shortly before the crisis.
Since the third quarter of 2013, AIG has also moved to buy back almost $20bn of stock, according to Meyer Shields, an analyst at KBW.
Yet returns remain underwhelming. For the second quarter, analysts have forecast a return on equity of 4.63 per cent and adjusted earnings per share of 92c, down a third from a year ago and the lowest second-quarter number since 2011.
Mr Hancock, the former JPMorgan banker who replaced the late Robert Benmosche almost two years ago, has resisted calls from activists Carl Icahn and John Paulson for the insurer to split its life and general insurance arms.
The results on Tuesday will be the first since the rebel shareholders took seats on the board, which they secured as part of a truce with the company’s managers.
Earlier this year Mr Hancock set out plans for further disposals — notably a listing of United Guaranty, AIG’s North Carolina-based mortgage insurance arm — and accelerated cost cuts.
Other steps the Englishman is taking to revive the insurer’s fortunes include a segregation of troublesome legacy assets and a reduction of its hedge fund exposure.
In March this year, Mr Hancock received a pay rise to $12.5m in total remuneration for 2015, up from $12.1m a year earlier. He received a base salary of $1.66m, a rise from $1.43m, and stock awards worth $8.23m, up from $7m.
However, the short-term incentive part of his remuneration declined 29 per cent to $2.5m as the insurer missed targets for profitability and expense management.
Net income on a GAAP basis is forecast to come in at $1.22bn. Although down about a third, and the lowest second quarter number since 2010, that would mark a return to profits after three consecutive quarters of losses.
As well as weak investment income, AIG’s recent results have been hurt by losses from hedge fund investments and claims from historic insurance policies — written from as far back as the 1990s.
Its second-quarter earnings are expected to be dented by losses from disasters that have struck the non-life insurance sector, including wildfires in Alberta, Canada.
AIG declined to comment ahead of its results.