American International Group, Inc. Reported Larger Than Expected Net Loss of $1.8 Billion in Q4 2015

American International Group, Inc. on February 11 reported a big quarterly loss, larger than expected. Weak underwriting and low return on investment hurt the insurer's overall performance in Q4, resulting a drop of full year income by more than 70%.

Failing underwriting and low investment returns led to a big operating loss of $1.3 bilion in the fourth quarter of 2015, while the insurer also experience a net loss of $1.8 billion. The fourth quarter losses was due to weak underwriting, lower investment return, and adverse loss. Restructuring cost and realized capital losses also contributed to the overall low performance.

As a result of fourth quarter's big loss, the company's full year net income fell more than 70% to $2.2 billion, compared to $7.5 billion in 2014. While its full year after-tax operating income was reported at $2.9 billion, a 56% drop compared to $6.6 billion income in full year 2014.

President and CEO Peter D. Hancock told Business Wire, "Over the past year, we have been implementing our strategy and made significant progress towards our objectives. During the fourth quarter, we streamlined our management structure to accelerate decision-making and strengthen accountability. Our recent strategy update detailed the next chapter of our transformation into a leaner, more profitable and focused insurer."

According to CEO Peter Hancock, AIG set a three-year plan in 2015 to transform AIG, and the actions taken last year has positioned AIG to achieve the next two years' goals. That includes streamlining management structure and narrowing focus to be a profitable businesses. He told Insurance Journal, "We're working to become our clients' most valued insurer and have a clear plan to maximize shareholder value that balances the interests of all of our stakeholders, including shareholders, debt holders, rating agencies, customers, employees, and regulators."

At the same time, AIG also made a deal with its activist investor Carl Icahn who previously threatened a proxy fight in the insurers and to split the company into three smaller ones. According to Reuters, AIG capitulated in Carl Icahn's request. As the company nominated both his representative and billionaire John Paulson to its board along with Samuel Merksamer, a managing director at Icahn Capital LP.

According to Reuters' data, Merksamer have already been sitting on the boards of 10 companies, including Cheniere Energy Inc, Transocean Partners LLC and Hertz Global Holdings Inc. He will soon join the AIG's board, while Paulson will be joining board in May.

A weak underwriting and lower investment return has resulted a loss for AIG in Q4 which hurt its full year income. Fortunately, the company has reached an agreement with its activist investor, Carl Icahn regarding his request for adding his team into the board member of AIG.