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AIG Inc. share price up, to cut annual costs by at least 3% through 2017

The biggest commercial insurer in the U.S. and Canada – American International Group Inc. – announced plans to reduce its annual general operating expenses by 3% to 5% through 2017 after declining by 4.8% to $8.72 billion in 2014.

The Chief Executive Officer of the company, who took over the position last year – Mr. Peter Hancock – said in a statement: “We remain committed to streamlining our operations and reducing our cost structure.”

The company reported a 67% decline in its fourth-quarter net profit to $655 million, or $0.46 per share, compared to $2 billion, or $1.34 per share, for the same period a year ago. Operating profit also fell, from $1.67 billion a year earlier to $1.37 billion.

The companys operating income was put under the negative impact of lower workers compensation discount. AIG also announced an expensive debt buyout, leading to an after-tax loss estimated to $824 million. In addition, a dividend of $0.125 per share was declared by the company.

Chief Executive Hancock said in a memo to employees, which was obtained by Reuters, that the company “deliberately refinanced debt, understanding that there would be a short-term impact to earnings, because we knew that the positive earnings impact over the longer term would be better for stakeholders.”

After taking the reigns of AIG last year, Chief Executive Officer Hancock has focused on eliminating positions and moving staff to lower-cost locations such as the Philippines. A total of $265 million was recorded in pretax severance expenses in the last three months of 2013 after the company reduced its workforce by 3%.

American International Group Inc. rose by 2.88% on Friday in New York to close at $53.96 per share, marking a one-year change of +8.81%. The company is valued at $73.43 billion. According to CNN Money, the 17 analysts offering 12-month price forecasts for AIG have a median target of $62.00, with a high estimate of $68.00 and a low estimate of $55.00. The median estimate represents a +14.90% increase from the last price of $53.96.

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