A look at operating income reveals strong underlying results, say the insurer's executives during a conference call to discuss results.

Despite AIG's P&C division turning in a fourth-quarter operating loss of $945 million due to losses from Sandy, AIG still turned in fourth-quarter net operating income of $290 million, compared to $1.47 billion during the same time in 2011.

Rate increases AIG sought after Hurricane Irene struck the Northeast in 2011 “mitigated Sandy's impact,” says Peter Hancock, head of AIG's global P&C business, during the call.

The insurer took steps to reduce U.S. catastrophe exposure over the last three years, and changed deductibles, terms and conditions, and implemented flood supplements, Hancock adds.

P&C operations recorded an underwriting loss of about $2.2 billion in the fourth quarter, compared to a loss of $636 million a year ago. Net premiums written were relatively flat quarter-to-quarter as growth in high-value accounts was offset by risk-selection initiatives and a change in the insurer's reinsurance program, explains Hancock.

Commercial insurance benefitted from continued rate increases in the fourth-quarter—up 6 percent globally, Hancock says. U.S. property rates were up 14.6 percent and U.S. workers' compensation rates were up 12.4 percent after improving 8.8 percent during the third quarter.

“The steps we've taken to improve business mix are producing more favorbale underwriting results,” Hancock says. “We expect modest real net premium growth in 2013.”

Hancock says AIG has completed its annual reserve study of workers' compensation and other long-tail lines, and the study “supported current reserve levels.”

For all of 2012, AIG improved operating income more than 200 percent to $6.6 billion from $2.1 billion in 2011.

SIFI Looming

“You have some days you wish you could have a simple company, but then we wouldn't be AIG,” says CEO Robert H. Benmosche during the earnings call, on AIG's belief it will ultimately be designated a systemically important financial institution (SIFI).

“They're here,” he says of the Fed. “We have a good partnership and I'm sure that they will be able to get a better sense of us in the months to come, but that's a long road because there is a lot to learn.

CFO David Herzog characterized the conversation with the Fed as “constructive, open and frequent.”

Without commenting on specifics, Herzog says AIG has “taken great steps to prepare ourselves through mock exams, enhanced documentation of procedures, and processes and risk limits–working hand-in-hand with [Chief Risk Officer Sid Sankaran] and our Treasury Group.”

Seeking Ratings Upgrade

Bemosche says AIG has been working with rating agencies to make them more comfortable with the company's operations.

“Keep in mind that we came out of this crisis much more rapidly [than most people thought," Benmosche says. "With the speed that this has occurred in, [rating agencies] just want more time to see us continmue to evolve with good solid earnings.”

Continuing, he adds, “An upgrade to AIG over the next couple years, I think, would be the important statement that says we have accomplished a strong comeback.”