American International Group (AIG) remains inexpensive and maintains exposure to both life and property/casualty insurance, and it has improved its business practices and turning from an unprofitable operation into a profitable one on an underwriting basis, says Randy Binner, Managing Director at FBR Capital Markets & Co.
“AIG is still not expensive at about 65% of book value. What we like about AIG is that it’s got a life business and a P&C business. We’re generally upbeat on both sides of the insurance industry. In fact, we really like the life insurance side currently. We think life companies are oversold relative to investor fear, and so I would say that the life at AIG is generally underappreciated,” Binner said.
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Binner says AIG has become moderately profitable on an underwriting basis after implementing best practices in its P&C side, making the turnaround easier for this insurance company. He also says AIG offers tax deferral, which could pose a benefit to investors.
“So what’s happening is that in last few years, managers have really tried to bring a lot of best practices to AIG, and so we think that the move from being above a 100% combined ratio,” Binner said. “Finally, AIG has a tax shield. They have a deferred tax asset that they’re going to continue to able to use for the next few years, and we think that’s something the market does not fully appreciate.”
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