Declines in its Asian businesses and accounting for hedges forced second-quarter earnings down 29% at American International Group Inc., despite growth in the general insurance and life insurance divisions.
Martin J. Sullivan, AIG's president and chief executive officer, said during the company's quarterly earnings call Thursday that revenues had fallen as its Japan and Taiwan businesses declined and investment losses were recognized. The company continues to be "challenged" by market conditions and increased competition in Taiwan and Japan, he said.
AIG's net income fell to $3.19 billion, or $1.21 per diluted share, and revenue was off 4.33%, at $26.74 billion.
Mr. Sullivan said adjusted earnings, excluding investment gains and losses and changes in the value of derivatives, rose to $4.16 billion, or $1.58 a share, from $3.28 billion, or $1.25 a share, a year earlier. Excluding a gain resulting from a change in accounting, quarterly income increased 15.2%, to $1.44 a share. The average of analysts' profit expectations for AIG was $1.39 a share, according to Thomson First Call.
AIG's stock was up nearly 3% in midday trading, to $60.22.
Analysts said AIG has invested heavily in Asia in the past five years. The foreign life unit accounted for 78% of its life and annuity premiums in 2005, the company reported, and Japan was the biggest contributor. AIG was among the first foreign insurers to enter the Japan and Taiwan markets.
"In Japan, we expanded our presence a few years ago," Mr. Sullivan said, "and now domestic companies are regaining their footing and increasing their presence. The impressive results of U.S. fixed annuities in Japan have now moderated."
AIG remains the leading foreign insurer in Japan, he said, and as the economy improves and interest rates rise, it "is well-positioned for growth as further deregulation in the bank channel continues."
The company continues to invest in both Taiwan and Japan, he said. It is introducing product strategies in both markets and has merged its life insurance units in Japan - AIG Star Life and AIG Edison Life - in order to develop scale efficiencies.
This month AIG announced the purchase of Central Insurance Co., a general insurance business in Taiwan, to increase its scale there.
Edmund S.W. Tse, AIG's vice chairman, life insurance, said that during the quarter the company switched from emphasizing traditional savings products in Taiwan to selling more investment-linked products. Higher-margin products, such as investment-linked products and health and accident insurance, accounted for 85% of new business in Taiwan, he said.
"Profits will emerge from Taiwan eventually," he said. "Profit margins will increase over the coming quarters."
Despite the difficult conditions in Asia, the company's domestic businesses improved. Its property and casualty unit had a 68.6% gain in operating income, and asset management, including mutual funds and brokerage services, grew 23%. "General insurance posted record underwriting profits," Mr. Sullivan said.
