NEW YORK — American International Group, the company repaying a $182.3 billion government rescue, led the insurance industry to its best year since 2003 as investments strengthened.
Nineteen of the 22 companies in the Standard & Poor's 500 Insurance Index are beating returns for the benchmark S&P 500 this year. AIG, based in New York, has nearly doubled and is the insurance index's best performer. Warren Buffett's Berkshire Hathaway has risen 22 percent this year.
The index, which also includes MetLife, the biggest U.S. life insurer, and brokers like Aon Corp., has advanced 15 percent, its biggest annual jump since it rose 19 percent in 2003. The S&P 500 has risen about 13 percent so far in 2010.
The industry is building on a recovery that started last year when the insurance index rose 11 percent. Insurers, which are regulated by states, avoided much of the federal Dodd-Frank financial overhaul this year, said Malcolm Polley, chief investment officer of Stewart Capital Advisors, a subsidiary of S&T Bancorp.
Insurers were "probably the best options in a troubled marketplace for financials," said Polley, who helps manage about $1 billion. "The whole financial services sector got taken out and shot in 2008. It didn't matter what kind of financial you were, people just wanted out. Now, you're beginning to separate the wheat from the chaff."
AIG, once the world's largest insurer, is shedding assets as it seeks to repay the U.S. government rescue and has reported improved investment results. Realized losses on investments cost the company $661 million in the third quarter, compared with $1.86 billion a year earlier. AIG surged 9.3 percent Monday after saying it had secured $4.3 billion in bank credit lines, another step toward gaining independence.
MetLife has reported net income of more than $2.7 billion this year through Sept. 30 after a loss of about $2.2 billion in all of 2009. Third-quarter investment income rose 12 percent from a year earlier to $4.39 billion. Shares of New York-based MetLife have climbed 27 percent this year.
"The insurance industry has done a pretty good job at bolstering its capital position," said Kenneth Janke, executive vice president and deputy chief financial officer at Aflac. "Investors have shifted more toward going back to looking at the income statements of the insurance companies and not just the balance sheets."
MetLife and Aflac are adding corporate debt to their portfolios as life insurers increase holdings in the securities at the fastest rate in six years amid near-zero interest rates. For the first time, life insurers own more than $2 trillion in the bonds issued by companies, according to data released by the Federal Reserve in Washington this month.
Property-casualty insurers benefited from the biggest increase in sales in four years in the quarter ended Sept. 30, according to a report from ISO, a unit of Verisk Analytics. Third-quarter policy sales rose 2.3 percent to $110.7 billion from $108.2 billion a year earlier.
Competition on commercial rates and a weakening municipal bond market may hurt property-casualty insurers next year, said Paul Newsome, an analyst with Sandler O'Neill & Partners.
"There are concerns about the financial strength of many municipalities across the country," Newsome said. State and local bonds are "very important for property-casualty insurers."