On Friday, Deutsche Bank (ETR:DBKGn) maintained its Buy rating on American International Group (NYSE:AIG) stock and increased the price target to $87.00. The financial institution anticipates American International Group to take action soon regarding its stake in Corebridge Financial.
Following Corebridge's earnings report on May 2, 2023, AIG is expected to further reduce its stake, which could lead to deconsolidation of Corebridge from AIG's financial statements.
The analyst from Deutsche Bank predicts that this move will transform AIG into a more streamlined entity focused solely on primary property and casualty (P&C) specialty insurance.
The simplification of AIG's business model is anticipated to attract a higher valuation multiple from investors, which is expected to compensate for any revenue loss due to the separation from Corebridge. This step is seen as a milestone, marking the end of AIG's restructuring phase.
American International Group's General Insurance segment has demonstrated profitability for the past three years. The improvement in performance is evidenced by the combined ratio, which has decreased significantly from 120% in 2016 to 90.6% in 2023.
This enhancement in the combined ratio is a result of various strategic actions taken by AIG, including asset disposals, improved risk selection, and a more effective use of reinsurance.
Additionally, AIG has strengthened its reserves and exited from unstable business lines. The company has also implemented tighter terms and conditions, increased attachment points, and moved away from offering large limits on individual policies. These measures have collectively contributed to AIG's more favorable underwriting outcomes.
Looking ahead, Deutsche Bank forecasts that AIG will continue to see improved returns. The firm attributes this optimism to AIG's sustained underwriting performance, potential increases in net investment income, and a streamlined organizational structure that should enable greater agility in operations.
InvestingPro Insights
As American International Group (NYSE:AIG) prepares to potentially reduce its stake in Corebridge Financial following the latter's earnings report, investors and analysts are closely monitoring AIG's financial metrics and strategic moves. According to real-time data from InvestingPro, AIG boasts a robust market capitalization of $50.3 billion, with a solid price-to-earnings (P/E) ratio of 14.29 for the last twelve months as of Q4 2023, signaling a potentially attractive valuation relative to earnings.
InvestingPro Tips reveal that AIG's management has been actively engaging in share repurchases, indicating confidence in the company's value proposition. Additionally, the company has a high shareholder yield, which could be appealing to investors seeking returns through dividends and buybacks. With AIG's track record of maintaining dividend payments for 12 consecutive years and a dividend yield of 1.93% as of March 2024, it stands as a testament to its commitment to shareholder returns.
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