We issued an updated research report on American International Group, Inc. AIG on Jun 30, 2015.
The gradual recovery in the economy and equity market, post the downturn in 2008, has helped AIG recoup the value of its investments. The improvement in market conditions has also allowed the company to dispose its redundant and risky businesses at attractive valuations. Keeping in line with this, the company has divested redundant assets worth over $70 billion since 2008. Strategically divested assets, along with consistent payoffs, improved the company’s operating and financial leverage as well as reduced interest expenses.
AIG enjoys a leading position in the insurance space, given its diversified and unique franchise in both domestic and international markets. Notably, after suffering a series of losses in 2008, 2009 and 2010, AIG finally rebounded by generating operating earnings since 2011 through the first quarter of 2015. Moreover, positive pricing trends, net flows, active spread management, and continuously improving momentum from run-off of businesses with higher-crediting rates at life and retirement units have aided modest growth of retirement and annuity products as well as assets under management.
AIG’s operational restructuring and re-pricing initiatives are expected to drive earnings growth in the foreseeable future. Additionally, the company’s strong finances have enabled it to engage in share repurchases and dividend payouts, thereby boosting investor confidence. The company also scores strongly with credit rating agencies.
However, AIG’s vigorous asset disposals are reducing its global market share. Furthermore, AIG has been incurring steep catastrophe losses and restructuring charges that include loss from discontinued operations. Apart from catastrophe losses and higher expenses, unfavorable reserve development continues to impede underwriting results at AIG.
AIG's business and investment portfolio are exposed to the subprime market much more than other P&C insurers. We are also concerned about the company’s significant subjection to residential and commercial mortgage-backed securities along with other collateral debt obligations. These factors have been major headwinds to the company’s growth since the beginning of recession in mid-2007.
AIG is scheduled to release its second-quarter 2015 earnings on Aug 3. The Zacks Consensus Estimate for the same is pegged at $1.19 per share, which reflects a year-over-year decline of 4.56%.
AIG currently holds a Zacks Rank #2 (Buy). Investors interested in the multiline insurance space may consider stocks like Prudential Financial, Inc. PRU, Cigna Corp. CI and Ping An Insurance (Group) Company of China, Ltd. PNGAY. All three stocks have the same Zacks Rank as AIG.
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