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AIG Advances on Risk Reduction and Balance Sheet Simplification

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AIG beats the estimates

As of June 2015, American International Group (AIG) stock has appreciated by about 12% over the past six months and by 11% over the last year. The company’s market capitalization has increased to $82 billion.

AIG’s 1Q15 earnings saw a 3% decline in earnings per share (or EPS) when compared with the first quarter of the previous year. The company beat analysts’ estimates by $0.03 and reported adjusted EPS of $1.22. It posted operating earnings of $1.69 billion, or $1.22 per share, in the first quarter. However, its net income rose more than 50% to $2.47 billion, mainly due to one-time gains from the sale of two of its large shareholdings.

In an April 30 company press release, Peter Hancock, AIG CEO noted, “Our diversified business model and balance sheet deleveraging highlight how we have reduced our overall risk level.”

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Insurance giant

AIG is one of the largest insurers in the United States. AIG’s annual revenue is around $65 billion, and the company operates across the globe in multiple product lines.

The Americas remain the major contributor toward AIG’s top line, providing ~50% of property and casualty premiums, and 97% of the life insurance revenues. In the US, AIG’s competitors include ACE (ACE), Allstate (ALL), Chubb (CB), and insurers included in the Financial Select Sector SPDR ETF (XLF).

AIG’s new leadership team, led by CEO and director, Peter Hancock, took charge in September 2014 to integrate and position the company for improved and sustainable performance. Hancock has a strong track record in the financial services industry, and he was the CEO of AIG’s property and casualty division before this role.

Here are the two major questions we’ll be investigating in this series:

  • Can AIG revive its investment income in spite of low interest rates?
  • Is there more upside to the company’s stock price?
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