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A Second-Look At AIG P&C

|Includes:American International Group Inc (AIG)
  • Analysts are wrong in the interpretation of P&C combined ratio, which helps in the short-term as we can do buy-backs below the book value - this goes a long way in improving EPS.
    If we exclude Prior year development net of premium adjustments from the P&C adjusted combined ratio 102.-3.1, P&C has been profitable with a adjusted combined ratio of 99.1. If we don't get any major insurance loss like Sandy, combined with the increase in premiums (which generally happen after a storm), 2014 will be a fantastic year for P&C.
    In fact, AIG has healthy premium growth in P&C which augurs well for the future. AIG lost around $189mn in aircraft leasing business (1,117 - 1,306). The AERCAP deal is a double whammy or probably a triple whammy for the following reasons:
    1. They will not lose money anymore on aircraft leasing business.
    2. They will have recurring income from AERCAP as they are able to turn the business to profit from a loss.
    3. The sale frees up liability of around $20 billion, which can be used to underwrite new policies. I assume an additional $200mn can be earned as a result of this alone.
    Bottom line, AIG need not do any magic for the turnaround - doing the business as usual itself should have telling effects

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: AIG, AIG-WTPlease add AIG warrants symbol to your database SYMBOL: AIG-WT (in yahoo finance)

Stocks: AIG