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Understanding AIG’s Discounted Valuations after 4Q17

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Price-to-book ratios

American International Group’s (AIG) price-to-book ratio stood at 0.79x on an NTM (next-12-months) basis. The company has discounted valuations, as an average of its competitors stood at ~1.1x. 

Among AIG’s competitors, Hartford Financial Services (HIG), RenaissanceRe Holdings (RNR), and Aspen Insurance Holdings (AHL) have price-to-book ratios of ~1.4x, ~1.2x, and 0.85x, respectively, on an NTM basis.

AIG witnessed significant catastrophe losses, which negatively affected its annual and quarterly results. The company posted $4.2 billion in catastrophe losses in 2017. 

According to its management, AIG’s structural changes could be an advantage as the current structure is more simplified, which could make its execution more efficient.

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Price target

AIG can recover from discounted valuations mainly due to its one-year price target. Wall Street analysts gave a one-year target of $67.93 on its stock, which reflects an increase of 14.3% from its current price of $59.43. Another reason for its lower valuations could be constant quarterly dividends from the past few quarters.

However, AIG’s management reflected positive views on the Validus acquisition, which could help the company recover its discounted valuations.

In November 2017, AIG declared a quarterly dividend of $0.32 per share. On February 8, 2018, it declared the same quarterly dividend of $0.32 per share. The most recent dividend is expected to be paid on March 29, 2018.

AIG’s price-to-book ratio on an LTM (last-12-months) basis stood at 0.74x. Among its peers (XLF), Hartford Financial Services (HIG), RenaissanceRe Holdings (RNR), and Aspen Insurance Holdings (AHL) have price-to-book ratios of ~1.1x, ~1.2x, and 0.75x, respectively, on an LTM basis.

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