AIG's second-quarter earnings outpaced the Zacks Consensus Estimate
based on lower expenses and catastrophe losses as well as higher
premiums and fees, improving combined and expense ratios. These
also drove the book value per share, AUM and ROE. The successful
streamlining of operations to control costs, business de-risking,
strong ratings and capital flexibility attained with the divestment
of ILFC are also showing results. An improved capital position also
led to accelerated capital deployment. While an improved financial
leverage remained impressive. Although intense competition,
volatility in interest rates and currency pose near-term financial
and operating risks, AIG is poised to accentuate growth in the long
run, justifying our Neutral recommendation.
Founded in 1967 and based in New York, American International
Group Inc. is a holding company, which through its subsidiaries, is
engaged in a range of insurance and insurance-related activities in
the U.S. and abroad. The company provides insurance, financial and
investment products and services to both businesses and individuals
in more than 130 countries and jurisdictions. Its subsidiaries
serve commercial, institutional and individual customers through a
property-casualty (P&C) and life insurance and retirement
services network. AIG common stock is listed on the New York Stock
Exchange, as well as on the Tokyo Stock Exchange. As of Dec 31,
2012, AIG and its subsidiaries had approximately 64,000
Since the third quarter of 2012, AIG operates in three primary
AIG Property and Casualty (P&C), operated through Chartis,
is the general insurance segment that underwrites various business
insurance products globally, including large commercial or
industrial property insurance, excess liability, inland marine,
environmental, workers' compensation, and excess and umbrella
coverages. It also offers various specialized forms of insurance
such as aviation, accident and health, equipment breakdown,
directors and officers liability, difference-in-conditions, export
credit and political risk, along with professional errors and
omissions coverage. In addition, this segment provides commercial
and consumer lines of insurance products. Beginning in the third
quarter of 2010, reporting includes the results of Fuji Fire &
Marine Insurance Company Limited (Fuji), a consolidated business
primarily writing consumer lines in Japan. Further, the segment has
been reorganized into three major global groups Commercial
Insurance, Consumer Insurance and Others. The segment accounted for
58% of total revenue in 2013.
AIG Life and Retirement, operated through SunAmerica Financial
Group (SunAmerica), is the domestic life insurance and retirement
services segment that offers a wide range of protection products,
including individual term & universal life insurance and group
life & health products. Insurance-oriented products consist of
individual and group life, payout annuities (including structured
settlements) and single premium immediate annuities. Retirement
savings products generally consist of fixed and variable annuities.
Results for certain brokerage service, mutual fund, Guaranteed
Investment Contracts (GIC) and other asset management activities
previously reported in the Asset Management segment are now
included in AIG Life and Retirement. This segment comprises
SunAmerica's extended operations through Woodbury Financial
Services, Service Net and People's Insurance Co. of China Ltd.
(PICC Life). The segment contributed 30% to total revenue in 2013.
The segment is further segregated into Retail and Institutional
On Nov 21, 2012, AIG announced a joint venture (JV) with PICC
Life in collaboration with The People's Insurance Co. of China Ltd.
(PICC Group). The JV attempts to help AIG reach out to the second
largest global economy of China. Accordingly, AIG invested $500
million in the JV by buying the H shares of PICC Group. Moreover,
AIG will retain at least 75% of the $500 million shares for 5 years
post PICC Group's IPO.
Apart from these two segments, AIG recognizes certain of its
activities in a separate segment called Other Operations. This
includes the results for the remaining operations of Aircraft
Leasing operations as well as Global Capital Markets portfolios
through AIG Financial Products Corp. and AIG Trading Group Inc. and
their respective subsidiaries (AIGFP), Mortgage Guaranty, and
Direct Investment Book (DIB) (AIG Global Real Estate Corp).
Further, it includes the divested businesses that are yet to be
discontinued along with the interest expense, restructuring costs,
expenses of corporate staff not attributable to specific business
segments (Corporate & other), expenses related to efforts to
improve internal controls, corporate initiatives and certain
compensation plan expenses. Additionally, the segment includes the
retained interest, which represents the fair value gains or losses
on the securities received from MetLife Inc. as consideration from
the sale of American Life Insurance Company (ALICO). Other
operations contributed 12% to total revenue in 2013.
For 2008 2011, AIG disposed of more than 40 assets worth over
$65 billion, while it also divested a U.S. auto insurer, more than
50 aircrafts from its plane-leasing unit and Israeli and Canadian
mortgage guarantors. In Oct 2010, the company raised $20.51 billion
through the IPO of 67% or 8.08 billion shares of AIA. In Nov 2010,
AIG sold off ALICO to MetLife Inc. for about $16.2 billion, while
80% of American General Finance Inc. (AGF) was purchased by
Fortress Investment Group LLC. AIG Star and AIG Edison units were
vended off to Prudential Financial Inc. for $4.8 billion in Feb
2011. The company also divested 97.6% of its stake in Nan Shan Life
Insurance Co. Ltd. to Taiwan-based Ruen Chen Group in Aug 2011 for
$2.2 billion. Consequently, these units are reported as
discontinued operations post sale.
Meanwhile, AIG divested its entire stake in AIA in Dec 2012,
raising about $35 billion from AIA's IPO and stake sale. In Apr
2013, AIG divested a runoff unit American Fuji Fire and Marine
Insurance Co. to the subsidiary of White Mountains Insurance Group
In May 2014, AIG divested International Lease Finance Corp.
(ILFC) to AerCap Holdings NV for about $7.6 billion. This comprised
cash of $3.0 billion and AerCap stock worth $4.6 billion, which
included 97.5 million shares priced at $47.01 on May 13.
In the past couple of years, AIG also paid off AIA special
purpose vehicle (SPV) preferred interests, the FRBNY credit
facility and the ALICO SPV preferred interests in full. The loans
against Maiden Lane II and III investment vehicles have also been
fully repaid, while the company regained its equity interest worth
$6 billion in Maiden III.
In Dec 2012, AIG completed repayment of the $182.3 billion
government bailout loan in the U.S. taken in Sep 2008. While the
Treasury earned an additional $22.7 billion from its investment, in
Mar 2013, AIG repurchased the final warrants (worth 2.7 million AIG
shares) from the U.S. Treasury for $25 million. The company has no
liability toward the bailout loan now.
American International Group Inc. (AIG): Read the
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