AIG Stock Analysis: Examining Key Factors for Investors (NYSE:AIG)
RobsonPL Comparison to Chubb Reveals Underwriting Strength
Following the deconsolidation of Corebridge Financial (CRBG), AIG’s (NYSE:AIG) business mix now closely resembles that of industry-leading peer, Chubb (CB). Comparing AIG to Chubb is essential to gauge their performance accurately. Let’s consider the following two graphics from recent company investor presentations:
AIG’s Business Overview:
– Commercial Property & Casualty: 36%
– Commercial Specialty & Financial Lines: 34%
– Personal – Accident & Health: 14%
– Personal Lines: 16%
– Other: 0%
Chubb Business Overview:
– Commercial Property & Casualty: 43%
– Commercial Specialty & Financial Lines: 12%
– Personal – Accident & Health: 19%
– Personal Lines: 19%
– Other: 7%
AIG has sold its Validus Re reinsurance and Crop Risk Services businesses, unlike Chubb, eliminating portfolio exposure in these areas. Currently, 70% of AIG’s portfolio is focused on Commercial P&C and Specialty lines, while Chubb’s allocation is only 55%. In a previous article on AIG, we discussed the company’s underwriting improvements in 2022 and 2023, which had them closing in on Chubb. AIG continues to deliver top-tier results that rival Chubb’s performance.
Underwriting Strength and Expense Reduction
AIG’s Global Commercial Lines Combined Ratio has averaged 86.8% over the last 4 quarters, with an Accident Year Combined Ratio averaging 83%. While Chubb does not disclose a Combined Ratio specific to its Global Commercial P&C businesses, an analysis estimates it to be around 83.9%. AIG’s commercial underwriting performance has been robust, potentially matching Chubb’s in recent quarters on an accident year adjusted basis.
The divestiture of Corebridge, Validus Re, Crop Risk Services, and Global Travel Insurance has streamlined AIG’s underwriting focus, driving expense reductions. Approximately $300 million of administrative expense is expected to be reduced from its corporate structure, translating to a 1.3% expense reduction on a consolidated basis. AIG’s expense ratio is projected to reach about 31% in 2024, with a target of 28% achievable within the next 3 years. Chubb’s expense ratio has averaged 27% in recent years and is on pace for that level in 2024.
Share Repurchases and Strategic Positioning
AIG’s market cap stands at $46.6 billion, with projected share repurchases of $7.3 billion over the current and next 5 quarters. CEO Peter Zaffino outlined a capital return strategy of $10 billion in ’24 and ’25 through share repurchases, aiming to drive earnings power and potentially explore M&A opportunities. The significant share repurchases are expected to retire roughly 1 out of every 6 shares, contributing to a positive outlook for the stock.
Analysts project a target price of $120 for AIG over the next 16 to 22 months, reflecting a 12.5 times expected EPS of ~$9.62. The company’s streamlined portfolio, underwriting gains, expense reduction, and capital returns are poised to drive ROE improvements, aligning AIG closer to Chubb’s long-term average. With the potential for a 3%+ structural reduction in its combined ratio, AIG aims to achieve higher returns on equity.
Key Risk Considerations and Conclusion
While CEO Peter Zaffino recently sold approximately 29% of his shares, reflecting a cautious approach in the current market environment, AIG’s strategic positioning and strong fundamentals support a positive outlook. The company’s focus on commercial P&C, consistent underwriting results, and capital returns make it an attractive investment opportunity with a projected 67% upside potential over the next 16 to 22 months.
Overall, AIG’s strategic moves, underwriting strength, and shareholder returns position it for continued growth and value creation. As the company navigates evolving market conditions and capitalizes on opportunities for expansion, investors can expect long-term gains and profitability from their investment in AIG.
In conclusion, AIG’s robust performance, expense reductions, and capital return strategy present a compelling case for investors seeking growth and value in the insurance sector. With a clear focus on enhancing shareholder value and driving operational excellence, AIG stands out as a strong contender for long-term investment success.
