Gauging AIG’s stock performance and valuation
AIG’s shares appear to be currently undervalued despite the improvements in its operating and financial metrics.
AIG’s underwriting income improved to $39 million in 4Q14 compared to a $132 million loss in 4Q13.
Pre-tax operating income of AIG’s Consumer Life Insurance segment stood at $80 million in 4Q14, compared to $215 million in 4Q13.
AIG stabilized investment spreads to some extent by reducing the cost of funds. The investment spreads show a stable profile compared to a falling yield.
AIG’s Mortgage Guaranty segment saw a prior year reserve release, implied by a ~12% higher loss ratio after adjustment, with a positive impact on earnings.
The combined ratio of AIG’s commercial P&C business improved in 4Q14, when compared with the 4Q13 ratio.
AIG’s top line dipped marginally in 4Q14 when compared to 4Q13, driven by disciplined sales and underwriting in casualty products in commercial P&C.
Liquid assets available to AIG’s parent company decreased between year end 2013 and year end 2014 due to a 50% reduction in cash and short-term investments.
AIG repurchased $6.5 billion of high coupon debt, replacing it with lower coupon debt to help AIG reduce its interest burden by ~$249 million per year.
AIG announced a 4Q14 dividend of $0.125 per share. AIG returned over $700 million capital in the form of cash dividends to shareholders in 2014.
In fiscal 2014, AIG’s general operating expenses were around 5% lower than those in the previous year, meeting the company’s target.
In 4Q14, AIG’s operating income after tax was impacted by a charge of more than $500 million for reserve strengthening and other estimate changes.
AIG’s 4Q14 operating income after tax deductions was ~$1.4 billion, down 18% from its 4Q13 operating income of ~$1.7 billion.
AIG’s financial objectives focus on profitability improvement, expense management, and balance sheet growth, achieving a sustainable ROE.
AIG reported a net income dip from $2.0 billion in 4Q13 to $655 million in 4Q14, due to an after-tax charge of ~$800 million for debt retirement activities.
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