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AIG Touches 52-Week High on Successful Strategic Planning
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On Dec 7, 2016, shares of the multi-line insurance giant, American International Group Inc. (AIG - Free Report) reached to an all time high of $64.99. Despite disappointing results in three out of the last four quarters, the stock seems to have gained investors’ attention with the rapid recalibration of its business and other growth initiatives.
At the very onset of the year, the company updated its business restructuring strategy which targeted geographical regions and segments with critical mass and expertise, while improving multinational capabilities.
So far this year, the company has been continuously taking steps in this direction. Shares have, however, returned 4.8%, underperforming the Zacks categorized Insurance Multi-Line industry’s return of 11.3% over the same time frame. The underperformance shows that investors are closely watching the several turnround actions taken taken by the company and their outcome. We expect the stock to gain going forward as and when the growth initiatives start bearing fruit, resulting in clear visibility for the company’s profitability.
Since the second quarter of this year, the company has announced or completed five strategic and complex transactions. These actions are increasing the sustainability of AIG's earnings and reshaping it. The Fairfax transaction is the most recent example of this strategy.
In August, the company announced that it will sell its mortgage insurance unit United Guaranty Corporation to Arch Capital Group Ltd. (ACGL - Free Report) . Also, in the same month, AIG completed the sale of its Taiwan unit. In May, the company completed the sale of Advisor Group to investment funds affiliated with Lightyear Capital LLC.
The company’s cost reduction initiatives are also worth noting. Through the first nine months of the year, AIG remained ahead of its 6% planned reduction with a 10% decline in gross operating expense. The company expects expense reductions to extend into 2017 and remain ahead of its plan as a result of actions taken across its operations.
Apart from fixing parts of its business and reducing costs, the company has taken steps to free up capital. In this regard, it completed a Life Reinsurance transaction in the third quarter that resulted in the distribution of approximately $1 billion of excess statutory capital from its U.S. life companies to AIG.
While this was the company’s first completed Life Reinsurance transaction that is expected to free up $4 billion to $5 billion of capital by the end of 2017, it remains focused on and confident about executing additional Life Reinsurance transactions. The company has also halved its hedge fund allocation, which is expected to free up $2 billion to meet its capital return target by the end of 2017.
The company is also executing well on its capital return target. In August, the company announced a new share buyback plan to repurchase additional shares with an aggregate purchase price of up to $3.0 billion. In Feb 2016, it had authorized an additional $5 billion in share repurchases. The company also raised its quarterly dividend by 14% this year.
AIG carries a Zacks Rank #4 (Sell). Better-ranked stocks from the same sector include James River Group Holdings, Ltd. (JRVR - Free Report) and FBL Financial Group Inc. , both carrying a Zacks Rank # 2 (Buy) .You can see the complete list of today’s Zacks #1 Rank stocks here.
James River Group posted a positive surprise in three of the past four quarters, with an average positive surprise of 3.60%.
FBL Financial Group posted a positive surprise in two of the past four quarters, with an average positive surprise of 3.26%.
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AIG Touches 52-Week High on Successful Strategic Planning
On Dec 7, 2016, shares of the multi-line insurance giant, American International Group Inc. (AIG - Free Report) reached to an all time high of $64.99. Despite disappointing results in three out of the last four quarters, the stock seems to have gained investors’ attention with the rapid recalibration of its business and other growth initiatives.
At the very onset of the year, the company updated its business restructuring strategy which targeted geographical regions and segments with critical mass and expertise, while improving multinational capabilities.
So far this year, the company has been continuously taking steps in this direction. Shares have, however, returned 4.8%, underperforming the Zacks categorized Insurance Multi-Line industry’s return of 11.3% over the same time frame. The underperformance shows that investors are closely watching the several turnround actions taken taken by the company and their outcome. We expect the stock to gain going forward as and when the growth initiatives start bearing fruit, resulting in clear visibility for the company’s profitability.
Since the second quarter of this year, the company has announced or completed five strategic and complex transactions. These actions are increasing the sustainability of AIG's earnings and reshaping it. The Fairfax transaction is the most recent example of this strategy.
In August, the company announced that it will sell its mortgage insurance unit United Guaranty Corporation to Arch Capital Group Ltd. (ACGL - Free Report) . Also, in the same month, AIG completed the sale of its Taiwan unit. In May, the company completed the sale of Advisor Group to investment funds affiliated with Lightyear Capital LLC.
The company’s cost reduction initiatives are also worth noting. Through the first nine months of the year, AIG remained ahead of its 6% planned reduction with a 10% decline in gross operating expense. The company expects expense reductions to extend into 2017 and remain ahead of its plan as a result of actions taken across its operations.
Apart from fixing parts of its business and reducing costs, the company has taken steps to free up capital. In this regard, it completed a Life Reinsurance transaction in the third quarter that resulted in the distribution of approximately $1 billion of excess statutory capital from its U.S. life companies to AIG.
While this was the company’s first completed Life Reinsurance transaction that is expected to free up $4 billion to $5 billion of capital by the end of 2017, it remains focused on and confident about executing additional Life Reinsurance transactions. The company has also halved its hedge fund allocation, which is expected to free up $2 billion to meet its capital return target by the end of 2017.
The company is also executing well on its capital return target. In August, the company announced a new share buyback plan to repurchase additional shares with an aggregate purchase price of up to $3.0 billion. In Feb 2016, it had authorized an additional $5 billion in share repurchases. The company also raised its quarterly dividend by 14% this year.
AIG carries a Zacks Rank #4 (Sell). Better-ranked stocks from the same sector include James River Group Holdings, Ltd. (JRVR - Free Report) and FBL Financial Group Inc. , both carrying a Zacks Rank # 2 (Buy) .You can see the complete list of today’s Zacks #1 Rank stocks here.
James River Group posted a positive surprise in three of the past four quarters, with an average positive surprise of 3.60%.
FBL Financial Group posted a positive surprise in two of the past four quarters, with an average positive surprise of 3.26%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>