AIG Expected to Post Improved Operating Performance in 1Q16



Improvement in 2016

American International Group (AIG) stock has fallen 14% over the past three months. The company is expected to report EPS (earnings per share) of $1.08 compared to operating loss per share of $1.10 in the December quarter. The company is looking to exit its hedge funds and continue stock buybacks. For 2016, AIG is expected to post EPS of $4.82, which reflects improved operating performance compared to 2015.

There’s been activist investment activity pushing for a split of AIG into three entities. On October 28, 2015, billionaire investor Carl Icahn wrote a letter to AIG’s president and CEO (chief executive officer) Peter Hancock, suggesting that AIG split into the following three companies:

  1. property-casualty coverage
  2. life insurance
  3. mortgages

The struggle intensified after the company’s weak operating performance. The Market is speculating on a possible sale of AIG.

AIG reported an operating loss of $1.3 billion in the fourth quarter of 2015. This compares to an operating profit of $1.4 billion in the corresponding quarter the previous year. The losses were primarily due to adverse prior-year reserve development and lower returns on alternative investments. The company is planning to exit its hedge fund positions and boost the buyback of its own stock.

How’s the insurance giant doing?

AIG is one of the largest insurers in the United States. Its annual revenue is around $65 billion. The company operates around the globe in multiple product lines.

The Americas region remains the major contributor to AIG’s top line. It provides ~50% of property and casualty premiums and 97% of life insurance revenues. In the United States, AIG’s competitors include ACE (ACE), Allstate (ALL), and Chubb (CB). Together these companies form 0.88% of the Vanguard Dividend Appreciation ETF (VIG).

AIG’s new leadership team, led by 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. He served as CEO of AIG’s property and casualty division before his current role as the company’s CEO.

In this series, we’ll be looking at AIG’s strategy for expansion and its operating divisions, leverage, dividends, and valuations. Let’s start by seeing how AIG’s retirement and personal segments are expected to push its consumer division.

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