On Aug 31, 2015, we uploaded our updated research report on American International Group Inc. AIG.
American International is the largest global insurer based on its shareholders’ equity, serving customers in more than 100 countries.
Over the past few years, American International has been streamlining its core insurance operations and restructuring business by axing operations, thereby enhancing capital allocation and operating leverage. The sale of ALICO, Star and Edison, AerCap Holdings, ILFC, are some of the divestures it has undertaken to sharpen its core operations. Moreover, the company will soon divest its subsidiary AIG Taiwan Insurance Co. Ltd’s consumer and small to mid-size enterprise (SME) businesses to Nan Shan Life Insurance Co.
Apart from divesting operations American International is seeking inorganic growth via mergers and acquisitions. Some of these include the buyout of Ageas Protect Ltd.; Laya Healthcare; a partnership with Primerica; completion of its acquisition of a controlling stake in NSM Insurance Group; and the acquisition of a controlling stake in ING Employee Benefits Global Network.
The merger of AIU Insurance Company Ltd. (AIU) and Fuji Fire and Marine Insurance Co., in Japan, is on track and will be completed as scheduled by the end of 2015. We believe these strategic partnerships will enhance the company’s operations, diversify its revenues and thus place the company on the path for future growth.
One of the company’s top financial goal is to generate sustainable operating efficiency gains via reduction in net expenses. The company targets 3–5% reduction in net expense by 2017.
Its balance sheet stands solid with a low debt-to-capital ratio of 16.3% thanks to the company’s consistent efforts to repay debt. American International reduced its overall debt by $10.5 billion in 2014.
Nevertheless, vigorous asset disposals by American International to lower debt are also narrowing the company’s global market share and will likely weigh on its operating earnings. Some other headwinds are exposure to catastrophe losses, significant government intervention and the designation of non-bank systemically important financial institution (SIFI) status that might put a leash on the company’s operations.
American International carries a Zacks Rank #3 (Hold). Some better-ranked insurers are Assurant Inc. AIZ, Assured Guaranty Ltd. AGO and Old Republic International Corporation ORI. All these stocks carry a Zacks Rank #1 (Strong Buy).
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