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AIG is now off 5.5%, as headline earnings look nice, but core operations less so. The combined...

AIG is now off 5.5%, as headline earnings look nice, but core operations less so. The combined ratio for P&C stood at 105 in Q3, down only a hair from 105.9 a year ago (above 100 means the company is paying out more in claims than it receives from premiums). The ratio for Allstate and Travelers showed far greater improvement, with both now in the 90 range, notes KBM's Cliff Gallant, nevertheless raising his PT on AIG to $34 from $31.
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Comments (11)
  • Tony Petroski
    , contributor
    Comments (6373) | Send Message
     
    "The combined ratio for P&C stood at 105 in Q3, down only a hair from 105.9 a year ago..."

     

    The (not so famous) head of Progressive Insurance, Peter Lewis, would not have put up with this.
    2 Nov 2012, 10:40 AM Reply Like
  • ahouseoforange
    , contributor
    Comments (397) | Send Message
     
    Agree that this ratio of 105 is not acceptable. My understanding is historically (at least the last 5 or 8 years) AIG has not been aggressive in spending sufficient amounts on technology (improvements) which would help them model their risks better and allow them to do a better job on which policies to underwrite and which to take a pass on as being too risky. Under Benmosche they have started spending significantly more on technology to 'close the gap' and as a result Chartis will be more effective over time modeling risk and improving the risk profile of the policies they underwrite which should lower the 105% number. Also, the additional spending on technology to make up for past shortfalls could have contributed to keeping the 105% number higher than it would have been had additional spending on technology not been necessary to make up for past shortcomings. It takes money to make money after all. Picked up an additional 2,500 AIGWT below $14.00 on weakness this morning. Feel very confident it will work out well with 8 years and 3 months of life left on them until January, 2021.

     

    Any dividend reinstatement during 2013 will bring some buyers into the stock, institutions, mutual funds, that are not allowed to buy non-dividend paying stocks. If AIG can unload ILFC sometime during 2013 it will greatly contribute to further improving their capital ratios. I don't blame them for waiting with the ILFC spin off, sale until market conditions improve versus dumping it now and not realizing full value. Holding onto the remaining AIA shares versus selling the entire thing last time has already netted AIG an additional 1 billion due to AIA's strong stock performance in Hong Kong since September.
    2 Nov 2012, 10:48 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (9719) | Send Message
     
    Core earnings were a complete disaster this quarter but the capital releases and upcoming under TBV buybacks will be very accretive.

     

    Tangible Book Value increases to nearly $70 (!)

     

    2014 price target: $73

     

    Very strong buy.
    2 Nov 2012, 11:19 AM Reply Like
  • SA Editor Stephen Alpher
    , contributor
    Comments (553) | Send Message
     
    Have you looked into the warrants at all? They seem a better buy.
    2 Nov 2012, 11:21 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (9719) | Send Message
     
    For the long term investor the TARP warrants are a true gift due to the anti-dilution measures.
    3 Nov 2012, 12:58 AM Reply Like
  • ahouseoforange
    , contributor
    Comments (397) | Send Message
     
    Warrants are the way to go if you think the common will increase in price even by just $10 or $20 in the next year or two. Two years from now the warrants will still have 6 plus years of life left on them. Own a lot of them already and bought another 2,500 this morning.
    2 Nov 2012, 11:55 AM Reply Like
  • papayamon
    , contributor
    Comments (1190) | Send Message
     
    what about this vs buying on margin... i'm currently sitting on 3300 shares i bought on margin. won't the leverage help me here vs warrants i can't leverage?
    5 Nov 2012, 10:35 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1718) | Send Message
     
    The warrants have built-in leverage.
    9 Nov 2012, 01:02 AM Reply Like
  • ahouseoforange
    , contributor
    Comments (397) | Send Message
     
    I don't do margin so I cannot really answer that question well. However, the warrants do provide leverage in and of themselves. Basically if you think the common stock will rise over time then 1 warrant let's you enjoy the benefits of the performance of 1 share of common stock. However, since the warrant costs less than 1/2 the price of a common share you control in excess of 2 common shares for each warrant you buy. Back when the warrants were at their low ($4.85 I think) and the stock was around $20 you basically could get 4 warrants for the same price it cost you to buy 1 share of common. As such you really are leveraged to the common by purchasing the warrants. Obviously if in your case margin works better than that is great but I am not a margin person.
    6 Nov 2012, 08:17 AM Reply Like
  • papayamon
    , contributor
    Comments (1190) | Send Message
     
    how would you control in excess of 2 common shares for each warrant? don't you mean to say that for what you could have paid for a share, you could have bought 2.x warrants? that's a different thing.
    10 Nov 2012, 12:35 PM Reply Like
  • ahouseoforange
    , contributor
    Comments (397) | Send Message
     
    Yields u the same benefit in the end.
    11 Nov 2012, 07:16 PM Reply Like
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