AIG offers the investor the opportunity to buy a large insurance company that has made dramatic improvements to its underwriting practices, at a vast discount to liquidation value. It is a company that still has work to do, to become a consistently efficient underwriter of risk, but evidence of improvement is easy to see. An investment in AIG should benefit from increasing earnings and returns on equity, along with possible multiple expansion. More aggressive capital allocation favoring share buybacks would be a meaningful catalyst to accelerating the timeframe of a successful investment.
AIG has undergone a great deal of change over the last decade. It is no longer the dynamic growth stock that it was years ago, with vast operations all over the globe, but it is still plenty big. Many years ago, AIG lost its way when it came to underwriting insurance risk. The company chased premium at unacceptable margins, hoping that the investment portfolio would bridge the gap. Aggressive accounting would often hide the true losses, only for them to be uncovered years later. Stepping into the fray was respected CEO Brian Duperreault who vowed to change that underwriting culture, and he also brought in Peter Zaffino to head the beleaguered General Insurance division. Their team made dramatic changes to concentration risk, reinsurance utilization, and core lines of business. No longer will AIG just try to write as much business as possible, and the company is willing to walk away when the underwriting risks outweigh the rewards.
On February 13th, AIG reported 4th quarter adjusted after-tax income of $919MM, or $1.03 per common share. AIG closed the 4th quarter of 2019 with a book value per common share of $74.93. Book value per common share, excluding AOCI was $69.20 and adjusted book value per common share was $58.89. These
