AIG tops view, starts talks on government exit

AIG's quarterly results topped Wall Street's expectations on Friday, and Benmosche said the insurer is actively looking to repay the U.S. government, which owns nearly 80 percent of what was once the world's largest insurer.

Benmosche, who earlier this year threatened to quit for the second time since he was named CEO, said in particular that the insurer is actively engaged in figuring out how it can pay back its debt to the Federal Reserve Bank of New York as quickly as possible.

I believe that when we are done here, we will have a smaller, more focused but still one of the largest insurance companies in the world, he told Reuters in a telephone interview.

AIG nearly collapsed in September 2008 from credit default swaps that left it on the hook for tens of billions of dollars in payouts to some of the biggest U.S. and European banks.

After the government rescue, AIG has been divesting assets to repay taxpayers, who are still owed more than $100 billion.

AIG will begin negotiating an exit of the Treasury's equity stake once it is clear on how the Fed's credit facility -- $26.5 billion including interest and fees -- will be paid down, Benmosche said.

REPAYING THE FED

AIG is already on its way to divesting some assets to pay down the government debt. Benmosche said AIG was working to do a public offering of its Asian life unit AIA as quickly as possible.

AIG revived plans for an IPO of the unit after a failed sale to Britain's Prudential Plc, which paid AIG a termination fee of $228 million.

If we can make it in the fourth quarter that will be great, Benmosche said.

AIG's aircraft leasing unit, International Lease Finance Corp, plans to go to the capital markets in the next couple of weeks to raise just under $4 billion, Benmosche said. The funds will be used to pay down the Fed's loans that AIG took since the fourth quarter to prop up ILFC.

AIG expects to close on the sale of another foreign life insurance unit to MetLife Inc in the fourth quarter. It is also exploring strategic alternatives, including a potential sale, for American General Finance.

Benmosche, who recently muscled out Chairman Harvey Golub from the AIG board after disagreements, said the board and I are working very well together. And I think things are proceeding very well.

AIG's shares closed 2.6 percent higher at $40.93 on the New York Stock Exchange on Friday, after rising as much as 5.7 percent earlier in the session.

AIG also sees converting the Treasury Department's preferred stake into common shares as one option to eventually end the government role in the insurer, Benmosche said.

The size of that and how that will work still needs to be thought through, he said.

STABILITY IN CORE OPS

AIG reported second-quarter earnings of $1.99 per share, excluding special items, up from $1.71 per share a year earlier. That exceeded an average forecast of 99 cents per share, according to Thomson Reuters I/B/E/S, which polled two analysts.

Things were pretty stable, Morningstar analyst Bill Bergman said. Stabilization doesn't mean growth and healthy growth, but it appears to be laying a basis for that.

On a net basis, AIG reported a loss of $2.7 billion compared with a year-earlier profit of $1.8 billion.

The net loss was primarily due to a $3.3 billion noncash goodwill impairment charge from the pending sale of American Life Insurance Co to MetLife.

AIG's general insurance unit, Chartis, reported operating income of $955 million before net realized capital gains, down from $1 billion a year earlier.

Chartis incurred $287 million of catastrophe losses in the quarter, including from floods in the U.S. Southeast, the explosion at BP's Deepwater Horizon oil rig, and the Icelandic volcano.

Chartis' worldwide net premiums written declined 1.6 percent to $7.8 billion.

The decline comes as the unit tries to maintain pricing discipline in some businesses, like natural catastrophe-exposed property businesses, Chartis CFO Rob Schimek said in an interview.

U.S. life insurance and retirement services, called SunAmerica Financial Group, reported operating income of $1.1 billion before net realized capital gains, up from $254 million a year earlier. Premiums, deposits, and other considerations increased 24 percent to $5 billion.

SunAmerica Chief Executive Jay Wintrob said the unit had been making substantial progress in re-establishing relationships with distribution partners who were spooked by AIG's problems.

That's a big part of why we are starting to see growth in our sales buildup, Wintrob said.

Benmosche sees Chartis and SunAmerica forming AIG's core.

AIG Financial Products, the unit behind the insurer's spectacular downfall in 2008, reduced the notional amount of its derivative portfolio to about $602.4 billion at June 30, down 36 percent from the end of last year.

(Reporting by Paritosh Bansal; editing by John Wallace, Lisa Von Ahn and Matthew Lewis)