Based on strong results and a rigorous effort to restructure its operations to increase leverage and generate capital to repay the government’s bailout money, we have upgraded American International Group (AIG: 35.95 +1.43 +4.14%) to Outperform from Neutral.AIG reported solid earnings during the first quarter of 2010, surpassing the Zacks Consensus Estimate of 48 cents by a considerable 73 cents. The better-than-expected earnings were primarily driven by the company’s robust profit in its insurance operations and significant improvements in its investment income.
Strong results at AIG’s General Insurance segment and Domestic Life Insurance & Retirement Service helped AIG to post better results during the quarter. General Insurance’s strong results were driven by improvement in net investment income, primarily from the recovery of partnership income despite major catastrophe losses. Domestic Life Insurance & Retirement Service segment fared well due to improved investment results.
AIG continues to stabilize its core insurance operations and continue with its restructuring plan. The company has been working for the past several quarters to sell assets and streamline its operations in an effort to repay the bailout money to the Federal Reserve, which rescued AIG from collapsing in 2008. The company’s repayment of the bailout money will in turn liberate it from pay restrictions.
AIG sold its American Life Insurance Co. division to MetLife Inc. (MET: 38.54+0.36 +0.94%) for $15.5 billion in March 2010. It was also in talks withPrudential PLC (PUK: 15.2495 -0.1505 -0.98%) to vend off its Asian life-insurance unit, AIA Group. However, the deal did not go through, as AIG was not ready to settle for a lower value, believing that its Asian unit should fetch a higher price.
AIG also plans to divest its Taiwanese unit, Nan Shan Life Insurance Co. Ltd. since the global economic breakdown created an unprofitable investment environment.
Moreover, AIG stands to benefit from a recovery in the value of its investments and expense control. Besides, the company also benefits from its scale of operations and the equity market appreciation. The quantitative Rank for AIG is currently #1, reflecting a Strong Buy opportunity.
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