AIG - American International Group

[Olmsted]

Boy management is busy these days.  AIG Israel, tendering high-interest notes - I like where this is going.  I think we are beginning to see a new, assertive AIG focused on getting its operations in order, and I like where they are going.

 

Now, just throw in a buyback too!

[berkshiremystery]

AIG is expected to report 4th qtr earnings next Thursday, Feb. 21., which will also include results for hurricane Sandy.

 

http://www.forbes.com/sites/greatspeculations/2013/02/19/can-aigs-earnings-extend-its-monster-recovery/?partner=yahootix

 

http://finance.yahoo.com/news/earnings-preview-sandy-weigh-aigs-002542289.html

 

 

 

 

 

[Liberty]

AIG is expected to report 4th qtr earnings next Thursday, Feb. 21., which will also include results for hurricane Sandy.

 

http://www.forbes.com/sites/greatspeculations/2013/02/19/can-aigs-earnings-extend-its-monster-recovery/?partner=yahootix

 

http://finance.yahoo.com/news/earnings-preview-sandy-weigh-aigs-002542289.html

 

I almost wish the results are a bit worse than what the "consensus of analysts" expects so that they can do buybacks at a lower price point once they get approval from the fed.

[ourkid8]

I am surprised at the lack of interest buying AIG or the warrants as it so selling for a significant discount to TBV.  The operating metrics are all heading into the right direction under strong management, 10% ROE is around the corner along with sub 100 combined ratios,  their capital structure is improving as they are repurchasing high yielding debt, insurance markets seem to be hardening and we have the possibility of further share repurchases at a significant discount!!! What's not to love about this story?

 

S

[Liberty]

! What's not to love about this story?

 

S

 

For most people, the name of the company, probably...

[CONeal]

! What's not to love about this story?

 

S

 

For most people, the name of the company, probably...

 

I agree with that.  I begged, pleaded, and everything else under the sun trying to get my mom to purchase some shares for her account back when it was $26.  Despite the run up it has not phased her a bit.  She still won't touch the company with a 10ft pole.  The weird thing about it is she loved BAC around $7.

[LC]

! What's not to love about this story?

 

S

 

For most people, the name of the company, probably...

Oiye...I don't want a story I just want an undervalued stock :)

[ourkid8]

Its giving me an opportunity to really load up on the warrants!!! This is unbelievably cheap. 

 

! What's not to love about this story?

 

S

 

For most people, the name of the company, probably...

[Liberty]

 

Oiye...I don't want a story I just want an undervalued stock :)

 

But without the story (that scares others), would it be that undervalued? :)

[fareastwarriors]

http://www.cnbc.com/id/100481053

 

Hedge funds run by the likes of Leon Cooperman and Dan Loeb have abandoned Apple stock and are taking large positions in AIG. So now what's the trade?

 

TheStreet CIO Stephane Link would be a buyer, but not just yet.

 

"I still like it, and if it were to weaken – mid-30s, I said it consistently – I would buy it back," she said Thursday on CNBC's "Fast Money."

 

"But I just don't like when everyone likes a stock, No. 1. Expectations are very high, No. 2, in terms of cash distribution. Everybody thinks they're going to announce a buyback, a dividend, whatever that is. They will down the road. They can't right now – the regulators won't let them."

 

Link said that she would continue to look at AIG's expenses, which she called "disappointing" last quarter.

 

"I think over time the story works," she added. "I just think I can get a better price."

 

News of the large positions came from a Goldman Sachs report looking at regulatory filings for the fourth quarter of 2012.

 

Besides Cooperman's Omega Advisors and Loeb's Third Point, other hedge funds moving into AIG stock after having dumped Apple include David Tepper's Appaloosa Management and Steven Cohen's SAC Capital.

 

Josh Brown of Fusion Analytics noted that the $5 billion-plus hedge funds' long positions in AIG were not infinitely positive for the stock.

 

"That's not great at the end when that ends, but it seems closer to the beginning. They will continue to support to the stock," he said. "They will be very quick to add to their positions on dips. Unless something changes, you can bet that they're going to want to push this higher

 

[stahleyp]

didn't tepper sell out of BAC around $7 or something?

[mankap]

AIG 4Q results are out

 

AIG Reports Fourth Quarter Operating Income Of $290 Million, Including After-Tax Storm Sandy Losses Of $1.3 Billion; Fourth Quarter Net Loss Of $4.0 Billion - 02.21.13 - 4:00 P.M.

Fourth Quarter Net Loss Reflects $4.4 Billion Net Loss On Sale From Discontinued Operations (International Lease Finance Corporation) Book Value Per Share, Excluding Accumulated Other Comprehensive ... More >>

 

http://www.aig.com/press-releases_3171_438003.html

[mankap]

There is a 6% improvement in loss ratio and adjusted combined ratio is 100.8 which contais around 1.5 points of severance costs.

AIG is almost there in achieving the target of COR <100. Once the market understand , AIG could trade at book.

 

The accident year loss ratio, as adjusted, improved to 63.3 from 69.3 in the fourth quarter of 2011 driven by a shift to higher value business and price increases. The fourth quarter 2012 acquisition ratio was 20.2, a 1.7 point increase over the fourth quarter of 2011 due to changes in business mix and a greater emphasis on direct marketing. The fourth quarter 2012 general operating expense ratio was 17.3, a 3.2 point increase over the fourth quarter of 2011. Over half of the increase in general operating expenses was related to investments in strategic initiatives and higher severance and other personnel costs.

[muscleman]

There is a 6% improvement in loss ratio and adjusted combined ratio is 100.8 which contais around 1.5 points of severance costs.

AIG is almost there in achieving the target of COR <100. Once the market understand , AIG could trade at book.

 

The accident year loss ratio, as adjusted, improved to 63.3 from 69.3 in the fourth quarter of 2011 driven by a shift to higher value business and price increases. The fourth quarter 2012 acquisition ratio was 20.2, a 1.7 point increase over the fourth quarter of 2011 due to changes in business mix and a greater emphasis on direct marketing. The fourth quarter 2012 general operating expense ratio was 17.3, a 3.2 point increase over the fourth quarter of 2011. Over half of the increase in general operating expenses was related to investments in strategic initiatives and higher severance and other personnel costs.

 

Could you please tell me what is adjusted combined ratio? In their reports, the combined ratio is 120-130 in various segments, which is scary to me.

[mankap]

AIG has not stated what do they mean by adjusted COR.

I think it is after taking out the effects of Sandy .

[biaggio]

I try to avoid these "adjusted" numbers.

 

I think the key metric is BV.

 

I am hopeful that they were aggressive putting in all the right offs , expenses/reserves they could find into this quarter.

 

My understanding is that it being an insurance company you have to trust the management regarding reserves, loss estimates etc. I think this is more art than science, and I believe there is some room to maneuver. I am no expert so anyone more knowledgable please correct me.

 

I am waiting for ROE of 10% in 2015, so I want the E or BV per share to grow or at least stay around $70

 

AIG is getting popular however, with the Hedge funds anyways. Its a bit worrysome that it has taken the place of APPL for hedge funds.

[muscleman]

AIG has not stated what do they mean by adjusted COR.

I think it is after taking out the effects of Sandy .

 

That doesn't make sense to me. They are insurers who write contracts on these catastrophic events. But now after it happened and hit their earnings, they adjust it as if it didn't happen?

[Liberty]

AIG has not stated what do they mean by adjusted COR.

I think it is after taking out the effects of Sandy .

 

That doesn't make sense to me. They are insurers who write contracts on these catastrophic events. But now after it happened and hit their earnings, they adjust it as if it didn't happen?

 

Fairfax does the same thing, iirc. It does provide some data on what a year/quarter without worse-than-usual disaster might look like (ie. if you want to compare two 'normal' years to see if they've improved operations or whatever, rather than try to compare a 'normal' year with 2005 or whatever). What really matters is actual results, of course, this is just one more data point that can either be used to elucidate some things or be misused to distort reality... IMHO, FWIW.

[muscleman]

AIG has not stated what do they mean by adjusted COR.

I think it is after taking out the effects of Sandy .

 

That doesn't make sense to me. They are insurers who write contracts on these catastrophic events. But now after it happened and hit their earnings, they adjust it as if it didn't happen?

 

Fairfax does the same thing, iirc. It does provide some data on what a year/quarter without worse-than-usual disaster might look like (ie. if you want to compare two 'normal' years to see if they've improved operations or whatever, rather than try to compare a 'normal' year with 2005 or whatever). What really matters is actual results, of course, this is just one more data point that can either be used to elucidate some things or be misused to distort reality... IMHO, FWIW.

 

OK. So if we can assume that hurricane Sandy happens once every 10 years, then we should divide the loss by 10, and add back 90% of the loss. But we must deduct 10% of the loss from the next 9 years' earning as well. That is how I would adjust the loss ratio. Do you think that is better?

[fareastwarriors]

http://video.cnbc.com/gallery/?play=1&video=3000149584

 

AIG CEO on CNBC talking earnings.

[orion]

I hope someone can explain to me in simple terms what´s the difference between BW of $66.38 and the BW less accumulated other comprehensive income (AOCI) of $57.87 is. Which one is the best measure of "progress"?

[Guest hellsten]

Somebody a while back explained that the company will just distribute shares to you at expiry if you don't exercise.  So say the stock is at $120 and the strike is at $40.  They'll just distribute $80 worth of stock to you.  That way you don't need any capital to exercise them. 

 

Is this information accurate?

 

That describes a "cashless exercise" provision which you see in some warrants.  Not, to my knowledge, in any TARP warrants.  In fact, I just glanced through the AIG prospectus and verified that there is no cashless exercise provision.  This excerpt from page S-1 spells it out pretty clearly:

 

Exercise Price  $45.00 per share, subject to adjustment. The Warrants require the payment of cash consideration.

 

Update: I only checked AIG's prospectus earlier, but Rabbitisrich pointed out to me that some of the TARP warrants only have a cashless exercise, like BAC-WTA.  AIG warrant info is still correct.

 

Most brokers will offer to do what is effectively a cashless exercise for you if you call them. They would simultaneously exercise and sell/short shares on the market so you don't need to hold any cash in your account. It's a risk free transaction for them and they love the easy commission.

 

Interesting - was not aware this was common, but it makes sense.  Thanks!

 

Thanks. To summarize, is this the correct interpretation:

 

AIG warrants require cash on expiration.

 

This means you have at least two options:

  1) have the required cash at hand

  2) call your broker to see if they can do it without your cash

 

BAC warrants don't require cash on expiration (cashless exercise). You receive BAC common stock.

 

I hope I have the right documents:

 

AIG:

http://www.sec.gov/Archives/edgar/data/5272/000095012311003847/y89089e424b2.htm

 

$45.00 per share, subject to adjustment. The Warrants require the payment of cash consideration.

 

BAC:

http://www.sec.gov/Archives/edgar/data/70858/000119312509009753/dex42.htm

http://www.sec.gov/Archives/edgar/data/70858/000119312510044940/d424b7.htm#tx70043_71

 

(i) by having the Company withhold, from the shares of Common Stock that would otherwise be delivered to the Warrantholder upon such exercise, shares of Common stock issuable upon exercise of the Warrant equal in value to the aggregate Exercise Price as to which this Warrant is so exercised based on the Market Price of the Common Stock on the trading day on which this Warrant is exercised and the Notice of Exercise is delivered to the Company pursuant to this Section 3, or

 

(ii) with the consent of both the Company and the Warrantholder, by tendering in cash, by certified or cashier’s check payable to the order of the Company, or by wire transfer of immediately available funds to an account designated by the Company.

 

I wonder what the tax consequences are:

The tax consequences of the exercise of a warrant that requires a cashless exercise are not clear.

[LC]

OK. So if we can assume that hurricane Sandy happens once every 10 years, then we should divide the loss by 10, and add back 90% of the loss. But we must deduct 10% of the loss from the next 9 years' earning as well. That is how I would adjust the loss ratio. Do you think that is better?

Right, but we can't make that assumption. The nature of long-tail loss is that catastrophic events happen of greater magnitude and frequency than we "assume".

[vinod1]

I hope someone can explain to me in simple terms what´s the difference between BW of $66.38 and the BW less accumulated other comprehensive income (AOCI) of $57.87 is. Which one is the best measure of "progress"?

 

Insurers have large bond portfolios which are usually held as "Available for Sale" for accounting purposes. These bonds have to be marked to market as the bond values changes (say, if bonds which have increased in value due to interest rates falling). BW includes these changes. However, liabilities for life insurers, which are also interest rate sensitive are not marked to market. Ex-AOCI basically removes the changes in value of "Available for Sale" from BV. For P&C insurers, we do not need to make this adjustment as liabilities are not very interest rate sensitive.  For life insurers, it makes sense to look at Ex-AOCI.

 

Vinod

 

[wescobrk]

Congrats to AIG shareholders...up 5 %

The CEO will be interviewed on bloomberg any minute.