AIG Misses Forecast, Is Target of Federal Probe

Third-quarter net income at American International Group Inc. (AIG), one of the insurance giants named an investigation into questionable sales practices, rose 7.5 percent in spite of higher catastrophe losses, but missed Wall Street's forecast by a penny.

The New York-based company also learned that its contract with cell-phone distributor Brightpoint Inc. (search) is the target of a federal grand jury investigation.

AIG Thursday said third-quarter net income rose to $2.51 billion, or 95 cents a share, from $2.34 billion, or 89 cents a share a year earlier.

Excluding realized capital gains or losses, earnings rose to $2.54 billion, or 97 cents a share, from $2.58 billion, or 98 cents a share, a year ago.

Analysts were on average expecting earnings of 98 cents a share, excluding capital gains, according to Thomson First Call.

Due to four hurricanes and three typhoons, catastrophe losses rose to $512.2 million, or 19 cents a share, compared to $46.2 million, or 2 cents a share, a year earlier.

Excluding realized capital gains or losses, as well as catastrophe losses, earnings rose 16.5 percent to $3.06 billion, or $1.16 a share, from $2.62 billion, or $1 a share, a year ago.

Revenue for the quarter ended Sept. 30 rose 25 percent to $25.41 billion from $20.31 billion a year ago.

AIG learned from the U.S. Attorney for the Southern District of Indiana that it is a target of a federal grand jury investigation for a contract with Brightpoint, of Plainfield, Ind., that allegedly involved what appeared to be insurance but didn't involve any actual risk transfer.

In September of 2003 AIG, which neither admitted nor denied wrongdoing, agreed to pay a $10 million fine to settle civil charges with the Securities and Exchange Commission (search) in connection with a financial product it sold Brightpoint.

Separately, New York State Attorney General Eliot Spitzer (search) last week filed a civil suit accusing insurance broker Marsh & McLennan Cos. (MMC) of bid rigging as well as of failing to properly disclose the incentive fees. Spitzer charged that because of these sales practices, corporate customers were not getting the best prices on property and casualty policies.

Spitzer's probe also mentioned AIG and several insurers, but did not charge them.

AIG Chairman and Chief Executive Maurice "Hank" Greenberg told analysts and investors Thursday morning that he won't let various regulatory probes distract his management from "running the business the way we should be running it."

Greenberg sought to reassure listeners to the earnings call that the Brightpoint probe focuses on a relatively small contract, and that the company is cooperating with Spitzer.

Shares of AIG were at $57.78, up 18 cents on the New York Stock Exchange.