AIG 1st-quarter net up 29 pct, takes loans charge : US Business

By Ed Leefeldt

NEW YORK (Reuters) - American International Group Inc. , the world's largest insurer, said on Thursday its earnings rose 29 percent in the first quarter, boosted by growth in its property insurance operations.

However, AIG disclosed for the first time it would have to take a pretax charge from its sub-prime loan exposure.

AIG's property and casualty business had a 31.5 percent increase in operating income to $2.98 billion, before capital gains and losses.

At the same time, AIG included a pretax charge of $128 million in the quarter for helping distressed borrowers stay in their homes.

"It shows that that while AIG may have a problem in one area, they always hit a home run somewhere else," said Matt Nellans, an analyst with Morningstar.

AIG is a diverse carrier that offers life insurance, property casualty, asset management and services such as aircraft leasing. It has nearly $1 trillion in assets.

In extended trading, AIG shares fell less than one percent to $71.71 from a $72.20 close on the New York Stock Exchange. In the last 12 months, AIG stock has risen about 8 percent, compared with a 14 percent gain in the Standard & Poor's insurance index <.GSPINSC>.

AIG's consumer finance unit has a portfolio of more than $24 billion in loans, mostly subprime. It has been in talks with the U.S. Office of Thrift Supervision over loans it made between 2003 and 2006 that may be in danger of default.

"Discussions with the Office of Thrift Supervision are quite advanced," said AIG spokesman Chris Winans, "and we are working on the details."

U.S. mortgage defaults are growing as homeowners with weaker credit histories come under pressure from slowing gains in home prices and higher rates on many adjustable mortgages.

Washington Mutual Inc. , the largest U.S. savings and loan, said on Wednesday it will refinance up to $2 billion in subprime home loans at below-market rates to help borrowers who might otherwise struggle to keep up with payments.

EXCEEDING ANALYST ESTIMATES

Net income for New York-based AIG rose to $4.13 billion, or $1.58 per share, from about $3.2 billion, or $1.22 per share, a year earlier.

Adjusted net income rose 30 percent to $4.39 billion, or $1.68 per share, up from $3.38 billion, or $1.29 a share, a year ago.

Analysts on average had expected the insurer to earn $1.55 a share on an adjusted basis, according to Reuters Estimates.

AIG is benefiting from the property casualty insurance cycle. Profits for the industry, which covers homes, cars and businesses against loss, reached a 19-year record in 2006.

AIG's asset management unit results more than doubled to $786 million in operating income in the latest quarter. Most insurers have been posting big investment gains as the Standard & Poor's 500 <.SPX> rose 5.4 percent in the first three months of the year.

Life insurance and retirement services income rose 5.1 percent to $2.54 billion, but while foreign life was up 13.9 percent, domestic operations declined 5.7 percent.

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