Blackstone gain helps AIG to bumper profit increase

While reporting bumper second quarter results, the world’s largest insurer revealed it made a profit of nearly $400 million when Blackstone floated in March.

American International Group, the world’s biggest insurer, saw a big jump in net income last quarter, helped by a large gain from the flotation of the Blackstone Group earlier this year.

The insurer realised an after-tax gain of $398 million (€290 million) by selling a portion of its investment in Blackstone in June, when the private equity group listed on the New York Stock Exchange.

The sale, and other investment gains, helped boost the group’s operating income from its asset management operations to $1.1 billion – a 44 percent increase on the same period last year.

AIG revealed the gain as it reported strong results for the second quarter. The insurer saw profits jump 34 percent in the three months to June, to $4.28 billion or $1.64 a share. Net income for the same period last year was $3.19 billion, or $1.21 per share. Total revenue was up 16 percent to $31.2 billion.

AIG bought a 7 percent stake in Blackstone for $150 million in 1998, as part of a $1.25 billion tie-up that also involved substantial commitments to the buyout giant’s various private equity and real estate funds. Based on the IPO valuation of about $40 billion, this stake was worth about $2.8 billion by the time of the flotation – a return of almost 19 times the insurer’s original investment.

The numbers suggest AIG sold a stake equivalent to about 1 percent of the management company at the time of the listing.

AIG also said that it had grown third party assets under management by 15 percent to $86.5 billion in the first half of the year. This included the launch of several new private equity and real estate funds.

The group also sought to reassure analysts about its exposure to the US sub-prime sector. “We are still very comfortable with our exposure to the US residential mortgage market,” the insurer said, despite a loss of $78 million in its mortgage insurance unit.