Following its significant restructuring over the past several
years, AIG (
) now primarily provides life insurance in the U.S. and also has
property and casualty operations in some of the biggest markets
around the world. Its after-tax operating income has grown from $2
billion in 2011 to $6.8 billion in 2013, highlighting its
operational recovery. We have a price estimate of
$50 for AIG's stock
, in line with the current market price. With the company set to
report earnings next week, we take a look at the company's P&C
operations, which account for 35% of its pre-tax earnings.
Check out our complete coverage of AIG here
Property And Casualty Operations
Around half of AIG's revenue is generated from P&C insurance
premiums, and half of these premiums are earned from the Americas.
AIG is currently the fifth largest P&C insurer in the U.S.,
with a market share of 4.52%. The company dominates the "other
liabilities" line of insurance with a market share of 11.49%, ahead
The Travelers Companies, Inc.
), which has a market share of 5.63%. AIG is also the fourth
largest insurer in the workers' compensation line of insurance,
with a market share of 6.14%. The company's premium income from the
Americas region has been around $17 billion for the last three
years but we expect a gradual increase in the coming years as the
U.S. economy and the job market improves.
Expansion In Asia
A third of AIG's P&C premiums come from the Asia-Pacific
region, where the company has operations in Japan, China, Korea,
Singapore, Vietnam, Thailand, Australia and Indonesia. The
acquisition of Fuji Fire & Marine Insurance Co. helped the
company expand operations in Japan. While Japan is the main focal
point of AIG's operations in Asia, the company has also seen strong
growth outside the country. Rate increases in property have
complemented organic growth in specialty and financial lines, and
as a result AIG's P&C Premiums in Asia grew $7.6 billion in
2008 to $10.5 billion in 2012. However, currency fluctuations,
particularly the weakening of the Japanese Yen against the U.S.
dollar, led to a 10% decline in premium volume in 2013. We expect
the company to regain momentum in the next two years.
AIG also has established operations in the United Kingdom,
Continental Europe, Russia, India, the Middle East and Africa.
These operations account for 20% of the company's P&C premiums
and have been around $6.6 billion for the last four years. India,
with a population of over 1 billion, presents a strong opportunity
for expansion, but foreign direct investment (
) in the Indian insurance sector is currently limited to 26%. There
have been talks of increasing the limit to 49%, but this might only
be possible after the ongoing general elections in the country.
In 2013, AIG Europe entered an agreement with HSBC Bank to
distribute insurance products in Turkey, France and several other
countries. The 10-year deal will primarily utilize the
"bancassurance" or Bank Insurance Model (
), relying on retail banking networks for distribution activity,
with sales made via insurance agents. We expect this deal to revive
sales in the European market in the coming years.
Claims And Expenses
Due to the international nature of its operations, AIG is
exposed to catastrophes worldwide. Claims and related expenses have
fluctuated between 86% of premiums in 2010 and 67% of premiums in
2013. This metric is difficult to forecast, but we believe it will
remain around the historical average of around 72% through the
decade. You can modify the interactive chart below to gauge the
effect a change in forecast would have on our price estimate.
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