Morningstar | AIG Needs Only a Modest Improvement to be Materially Undervalued
On May 15, 2017, American International Group announced that Brian Duperreault would become CEO. We believe his background is a good fit in terms of solving AIG's main operational issue--improving commercial property-casualty insurance underwriting. However, the market remains unimpressed with his tenure, with the company's stock down about 10% since AIG announced his appointment. While the company has not shown a lot of tangible progress in improving underwriting results so far, we appreciate that it will take some time to solve its issues. The company, in our view, does not need to see a dramatic improvement to stop destroying shareholder value; it only needs to move from a negative outlier to merely subpar. We estimate that, all else equal, AIG would only need to improve its commercial P&C combined ratio to 97% (a level that would still be worse than its peer group range) to be able to generate a 10% adjusted ROE. Given that we see no structural issues in its core operations, we believe that the company gradually trending toward peer results is a realistic assumption. Using peer price/book multiples, we estimate that there could be over 50% upside from the current trading level if AIG were to reach this mark.For more details, please see our Select presentation, “Outlining AIG's Path to Mediocrity."
American International Group is a holding company. Through its subsidiaries, the company provides a range of property casualty insurance, life insurance, retirement solutions, and other financial services. The company's businesses include General Insurance, which provides insurance products and services for commercial and personal insurance customers; Life and Retirement, which brings together a portfolio of life insurance, retirement and institutional products provided through a multichannel distribution network; and Other Operations, which include Blackboard U.S. Holdings, Inc., a subsidiary focused on delivering commercial insurance solutions using digital technology, data analytics and automation.
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