AIG May Not Look Great Right Now, But It Has Huge Potential

AIG is surging ahead with much stronger performance in its Property and Casualty Business. Life insurance and mortgage will do very well in the future.

Apr 10, 2014 at 7:09AM

Track
Source: Flickr / tableatny.

With remnants of the financial crisis still connected to its name, AIG (NYSE:AIG) has had to take a lot of bold steps to reshape their business, which at first glance can look pretty messy. Looking deeper, though, it's clear to see that the company's management is making extremely smart moves. Although these moves might not look popular to the market and its short term outlook, they are setting the stage for an extremely solid, safe, and focused competitor in the insurance space.

Focusing on the breadwinners -- and focusing long-term
AIG's property and casualty insurance segment is the cornerstone of its business, making up approximately 65% of its revenues from insurance operations last year. As a result, the company is making the right move in devoting resources to the segment.

With underwriting losses already decreasing substantially in 2013 compared to the previous year, further investment in research and development to improve underwriting standards should lead to even better returns in the coming years.

AIG still has a long way to go in improving their underwriting profits as its combined ratio -- the metric that looks at incurred expenses paid out divided by premiums earned -- still stands well above 100%, meaning the company's insurance business is paying out more than it's bringing in.

While this does not look too good today, it is important to keep an eye on the trend in this ratio: with a renewed focus on insurance combined with increased resources devoted to the segment, a drop below 100% would be a huge milestone and bode extremely well for the company's future profitability.

Going Forward
In spite of all its troubles in the prior years, especially during the subprime crisis, AIG is showing that it's committed to becoming a much more focused company. While the numbers may not look great today compared to its peers, this company still presents an intriguing opportunity that should be watched quite closely.

At a price to tangible book value of 0.7, the market is still heavily discounting AIG, most likely due to a combination of these less-than-great current metrics and future uncertainty. However, smart investors are focusing on the business and the actions of management: by making unpopular moves today, AIG is taking a long-term bet that a simplified, streamlined company down the road will be much more profitable than its current state.

Ultimately, if you combine that with the discounted price that it's been trading at, this could be a huge opportunity for Foolish investors concerned with buying and holding quality businesses for the long haul, with big rewards.

A company that's revolutionizing banking
Do you hate your bank? If you're like most Americans, chances are good that you answered yes to that question. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. For the name and details on this company, click here to access our new special free report.

Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends American International Group and Berkshire Hathaway. The Motley Fool owns shares of American International Group and Berkshire Hathaway and has the following options: long January 2016 $30 calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers