Former Chairman of AIG (AIG), Harvey Golub, recently caused a stir saying that AIG should not exist in the future and should be split up between its life and property & casualty business. He argued that the two business units are more valuable separately than combined together as there is no strategic fit between them. Current Chairman, Steve Miller, told reporters that AIG will keep its two businesses together as they help diversify the other’s risk. AIG is one of the largest insurance companies in the U.S. and competes with MetLife (MET), The Hartford (HIG) and Prudential (PRU).
AIG’s property & casualty unit is branded as Chartis Inc. while its life insurance unit is called SunAmerica Financial Group. These two sections account for 42% and 9% of AIG’s stock price respectively. We have a price estimate of $30.36 on AIG’s stock which is about 25% below its current market price.
Golub was hired in 2009 to help oversee asset sales and simplify a company that leased planes, held derivatives and insured mortgages. He had his differences with current CEO, Mr. Benmosche, over the divestiture of AIG’s biggest non-U.S. life insurance unit, AIA Group Ltd. and was replaced by Steve Miller.
Following AIG’s receipt of $182 billion of government bailout money, it was forced to restructure which left the U.S. Treasury with 92% of AIG’s common shares. The Treasury plans to sell the stocks later this year and Bank of America (BAC), JPMorgan (JPM), Goldman Sachs (GS) and Deutsche Bank (DB) were picked to manage the sale and will share fees totaling 0.75% or less of the stock sales.
With this restructuring going on, investors want to know how the business might look like in the future and so Golub’s comments are a little unsettling. By indicating that a change might be needed in the future, investor doubts could grow and this could delay the share sales by the U.S. Treasury.
In considering the two most important segments to AIG, we wanted to review our forecast for the two most important segments of AIG included below.
(Chart created by using Trefis' app)
Property & Casualty Insurance
AIG writes all lines of commercial and general insurance including auto insurance and home insurance around the world in regions such as North America, Asia, the Pacific, Europe, the UK, Middle East and Latin America. AIG’s insurance product offerings are far better than its competitors.
AIG’s share of property & casualty market decreased from near 10% in 2006 to 7.5% in 2009 due to declining rates, lower employment and increased competition. We expect AIG’s market share to improve as the company would focus more on its core business and leverage its position as the largest P&C insurer in the U.S.
(Chart created by using Trefis' app)
U.S. Life Insurance
AIG has a strong presence in the U.S. as a leading provider of life and health insurance. It also has over 90 years of experience in the insurance business during which it has built a strong multi channel distribution network that includes banks, national, regional and independent broker-dealers, career financial advisors, wholesale life brokers, insurance agents and a direct-to-consumer platform.
During the financial crisis of 2008-09, AIG has sold off businesses to repay the bailout money received by the government. This has led to a decline in its market share from 2% in 2008 to about 1.3% in 2009. We expect its market share of U.S. life insurance to improve gradually to about 1.6% by the end of our forecast period.
(Slideshow created using Trefis Pro app)
Disclosure: No position
