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AIG - American International Group

PlanMaestro

By PlanMaestro
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Txvestor Newbie

Txvestor

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That last loint about IPO the mortgage insurance unit even though market is hostile and especially so against mortgage insurers smacks of a management desperate about their positions than acting in shareholder interests.

Carl will have a field day with them, and I think he is doing shareholders and the country a sevice here. I'm for anything at any level that deals with SIFI. SIFIs are toxic to our economy.

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orthopa Newbie

orthopa

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https://www-160.aig.com/content/dam/aig-mktg/america-canada/us/documents/landing-pages/aig-strategy/press-release/investor-deck-2-1-16-vf.pdf

 

Management says DTAs are hugely important and breaking up would destroy value. Analysts and Icahn says the company is holding Billions of dollars of extra money as a SIFI and the parts are worth more separate.

 

What seems to bother me is that management takes a 3.6B charge to strengthen reserves and sneaks it into a strategy discussion.

 

Anyone smarter to me know who is right, or more right? Hancock or Icahn?

 

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Spekulatius Newbie

Spekulatius

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The breakup is not going to solve AIG operational problems. They do have these kitchen sinks regarding reserves every few years.This has long  standing history with AIG and one of the reason why it's right fully valued below book.

 

That said, I did add to my shares today at $50.7.

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orthopa Newbie

orthopa

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The breakup is not going to solve AIG operational problems. They do have these kitchen sinks regarding reserves every few years.This has long  standing history with AIG and one of the reason why it's right fully valued below book.

 

That said, I did add to my shares today at $50.7.

 

I read through the conference call and compared to previous ones there seems to be alot more attention being paid to cleaning up the policies, attempt to price policies better, and it seems they are going to run off legacy polices as a separate group. This will help give a better idea if the new policies are being prices better ex legacy.

 

I agree that AIG is rightly priced below book but honestly that is the best thing for a company that is going to buy back nearly 1/3 of their market cap over the next 2 years at current prices. Unless management is running the company into the ground that is going to create value and the div yield is a respectable 2.5% now.

 

If a break up isn't the best strategy I still think having John Paulson and Carl Ichan on the board is going to get things improving for shareholders.

 

I hold the warrants so I still can give managment/Ichan/Paulson 5 years to get things in order.  5 years from now 50% of the shares outstanding could have been bought back. Hopefully with changes occurring now AIG will deserve to trade at full book value before warrant expiration.

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Spekulatius Newbie

Spekulatius

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We know if the new policies are priced correctly in ten years when it is clear that the reserves taken for future claims are sufficient. I personally don't trust AIG reserve policy, until they have at least shown 5 years of positive reserve releases, without a kitchen sink year.

 

Many insurance companies that are well run (PRE, Y, MKL  and others ) show that it can be done. Reported earnings are of far less import ace that consistent growth in book value for insurance companies, because reported earnings can be so easily manipulated. It will take years until Mr. Market trusts AIG book keeping enough to value AIG stock above book, regardless of what Icahn can come up with, imo.

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Spekulatius Newbie

Spekulatius

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The breakup is not going to solve AIG operational problems. They do have these kitchen sinks regarding reserves every few years.This has long  standing history with AIG and one of the reason why it's right fully valued below book.

 

That said, I did add to my shares today at $50.7.

 

I read through the conference call and compared to previous ones there seems to be alot more attention being paid to cleaning up the policies, attempt to price policies better, and it seems they are going to run off legacy polices as a separate group. This will help give a better idea if the new policies are being prices better ex legacy.

 

I agree that AIG is rightly priced below book but honestly that is the best thing for a company that is going to buy back nearly 1/3 of their market cap over the next 2 years at current prices. Unless management is running the company into the ground that is going to create value and the div yield is a respectable 2.5% now.

 

If a break up isn't the best strategy I still think having John Paulson and Carl Ichan on the board is going to get things improving for shareholders.

 

I hold the warrants so I still can give managment/Ichan/Paulson 5 years to get things in order.  5 years from now 50% of the shares outstanding could have been bought back. Hopefully with changes occurring now AIG will deserve to trade at full book value before warrant expiration.

 

AIG doesn't generate $25B in earnings to finance such a huge buyback, they will have to shrink the company substantially, which would reduce AIG's earnings power. I don't think it is a realistic plan and it probably won't get past the regulators. I recommend that investors in AIG read the articles about AIG in the Aleph Blog first, the author knows insurance and he is holy critical of the new capital return plan. Icahn in my opinion does not have an edge in insurance and probably does not understand the business well. That said, I still think that AIG is cheap, but it's not S cheap as the current numbers (book value ) imply, as I think there are further reserve revisions likely over time. AIG for me is a slow motion recovery/reversal to the mean play, not an "unlock huge value" play.

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orthopa Newbie

orthopa

Posted
Posted

 

The breakup is not going to solve AIG operational problems. They do have these kitchen sinks regarding reserves every few years.This has long  standing history with AIG and one of the reason why it's right fully valued below book.

 

That said, I did add to my shares today at $50.7.

 

I read through the conference call and compared to previous ones there seems to be alot more attention being paid to cleaning up the policies, attempt to price policies better, and it seems they are going to run off legacy polices as a separate group. This will help give a better idea if the new policies are being prices better ex legacy.

 

I agree that AIG is rightly priced below book but honestly that is the best thing for a company that is going to buy back nearly 1/3 of their market cap over the next 2 years at current prices. Unless management is running the company into the ground that is going to create value and the div yield is a respectable 2.5% now.

 

If a break up isn't the best strategy I still think having John Paulson and Carl Ichan on the board is going to get things improving for shareholders.

 

I hold the warrants so I still can give managment/Ichan/Paulson 5 years to get things in order.  5 years from now 50% of the shares outstanding could have been bought back. Hopefully with changes occurring now AIG will deserve to trade at full book value before warrant expiration.

 

AIG doesn't generate $25B in earnings to finance such a huge buyback, they will have to shrink the company substantially, which would reduce AIG's earnings power. I don't think it is a realistic plan and it probably won't get past the regulators. I recommend that investors in AIG read the articles about AIG in the Aleph Blog first, the author knows insurance and he is holy critical of the new capital return plan. Icahn in my opinion does not have an edge in insurance and probably does not understand the business well. That said, I still think that AIG is cheap, but it's not S cheap as the current numbers (book value ) imply, as I think there are further reserve revisions likely over time. AIG for me is a slow motion recovery/reversal to the mean play, not an "unlock huge value" play.

 

True, not all of that cash return is going to come from earnings. We may see a good portion of it come from restructuring and better cost controls. 2B alone will be freed up in capital required to be held with getting out of hedge fund investments.

 

Should be an interesting couple of years coming up with activists on the board.

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racemize Newbie

racemize

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Certainly they are shrinking the company--I think that's what we want right?  They are getting rid of low earnings assets, utilizing DTAs and buying back stock at less than book value.  That should be accretive to book value and ROE over time. 

 

For me, the thesis has always been that book value increases at a moderate pace (say 7% a year), ROE slowly increases (slowly closing the discount to book), and they buy back stock all along the way.  Pretty good returns for the warrants in that scenario, but nothing sudden or dramatic.  Leveraged GARP as Eric has called it.

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orthopa Newbie

orthopa

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Certainly they are shrinking the company--I think that's what we want right?  They are getting rid of low earnings assets, utilizing DTAs and buying back stock at less than book value.  That should be accretive to book value and ROE over time. 

 

For me, the thesis has always been that book value increases at a moderate pace (say 7% a year), ROE slowly increases (slowly closing the discount to book), and they buy back stock all along the way.  Pretty good returns for the warrants in that scenario, but nothing sudden or dramatic.  Leveraged GARP as Eric has called it.

 

I agree, its shrinking the company via getting rid of the legacy assets that seem to be the biggest drain on ROE. That being the case it theoretically should not be a corresponding shrinking of value.  Hopefully management is able able to weed out those policies efficiently. Looks like the target is disposing around 40% of those policies in the next 2 years.

 

Their goal of ~10.5% ROE in the operating portfolio by end of 17 and 9% consolidated is aggressive but should allow the stock to trade much closer to book value by then.

 

 

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