Perhaps no US name is more synonymous with the financial crisis and its despised bailouts than AIG. Four years after AIG’s $180bn rescue, the US Treasury has sold the last of its stake in what Ben Bernanke once described as a hedge fund attached to a large and stable insurance company. The hedge fund has been wound down and all told the government reaped a profit of more than $20bn for its trouble. The government’s exit is an important milestone for AIG, but investors should already be focusing on the company’s core insurance business.
AIG’s shares have jumped more than 50 per cent this year as government involvement dwindled. At $35, AIG’s shares still trade at about half the company’s book value while more profitable rivals in the insurance industry, such as Chubb, Travelers and ACE Limited, trade in line with their book value. AIG’s return on equity, excluding one-time gains, is about 5 per cent, while some of its peers have ROES of 10 per cent, according to Bernstein. AIG wants to reach a 10 per cent ROE by the end of 2015.
Historically low rates will continue to pressure AIG’s life insurance business and those of its rivals. But even before its disastrous turn with derivatives, AIG was known for being aggressive on pricing premiums in its property and casualty business, focusing on top-line growth rather than profitability.