Elderly live longer- American International Group Inc (NYSE:AIG) writes down $600 in impairments

Northern, WI 03/13/2013 (avauncer) - Since end 2010, American International Group Inc (NYSE:AIG) has been corked on paying insurance premiums for customers who had lived over the age that they had been expected to. The insurance company has had over $600 million in impairments alone on death-benefits since that year. In 2012, $309 million worth of impairments were recorded while in 2011 that amount stood at $312 million said the company’s annual report. Via the so-called life settlement contracts, investors were permitted to buy individuals’ insurance policies and then payout their premiums till their death. The longer a person survives the higher AIG’s liability.

De-focusing from life contracts

Robert Benmosce, the American International Group Inc (NYSE:AIG) CEO has more currently started focusing on home loans as he is reorganizing the investment portfolio. In 2011 he said that the New York-based insurer has reviewed all its life contracts and that they will be de-emphasizing from it. Resultantly it is going to be very difficult to sell these holdings as more often than not, it tends to be a buyers market. At the end of 2007, AIG had held 2,632 policies with a carrying value of $1.6 billion and in 2011 its 5901 policies were valued at $4 billion. By the end of 2012, it had 5673 policies worth $4.2 billion.

It’s nothing but a bet

The gains for investors such as AIG come in only if the purchase price plus the cost of policy maintenance is lower than the death benefit. The company stands to lose when it determines that a particular person will live longer than what they had expected. Even if the contract is expected to be of a higher value, the company does not peg it higher said American International Group Inc (NYSE:AIG)’s head of property-casualty business Peter Hancock. According to the filing there are various reasons for the impairments.

Numerous resulting factors

Starting 2011, the company had hiked its use of medical information in determining the value of the contracts. In some cases, the management intent has changed about holding onto some of its life-settlement contracts. In some other cases, the health of the individual had improved and the bets have not been very good said an analyst and the business is definitely a tough one for every company concerned. That’s probably why Benmosche has said that that a very in-depth strategic review has been conducted and American International Group Inc (NYSE:AIG) this will be studied as an asset class but not a business that they will be stressing on.

Shares of American International Group Inc (NYSE:AIG) went down by 0.91% to close at $39.11