AIG's Road to Recovery

Despite the brutal treatment afforded to companies that disappoint, Wall Street is actually something of a forgiving place. As long you post the numbers and keep making money, investors will overlook quite a bit.

Judging by its first-quarter earnings, insurance and financial-services giant AIG (NYSE: AIG  ) seems to be taking those first steps toward repairing its image. Despite the ongoing lawsuits and investigations, reported results looked quite solid.

In the insurance business, premiums written grew more than 7%, while net premiums earned rose more than 11%. The company's combined ratio (a measurement of the profitability of the insurance business) improved by 1.43 points to 93.41. In all, the life insurance and retirement business posted better than 24% growth in operating income, with strength both here and abroad.

In the financial-services business, operating income rose approximately 19%, in part because of strength in the aircraft-leasing market. For asset management, AIG saw a 29% rise in operating income and grew assets under management to about $55 billion.

On the bottom line, AIG posted an adjusted profit for the first quarter of $3.19 billion, or $1.21 per share. Not only is this above analyst expectations, but it also marks solid year-over-year growth from last year's $1.01 per share in adjusted profit.

Looking ahead, there's no doubt that AIG faces several challenges. Although we're probably past the point of discovering new scandals, the company is only just beginning to pay the price for its past problems. The good news, though, is that AIG should be able to weather the fines and settlements.

Looking more at the operations, management acknowledged some softness in insurance rates but didn't seem particularly worried about the overall health or prospects of the insurance business. As for the other lines of business, AIG's changing credit rates won't help the asset-management business, but trends there are still strong. In financial services, management expects ongoing strength in aircraft leasing to help results.

Although AIG has risen by more than 15% from its lows, it still probably has room to run. Scandals notwithstanding, AIG has been one of the best insurance companies in the world for some time, and the company's strong global footing should only help future results.

Other global insurance and investment companies such as Axa (NYSE: AXA  ) and ING Group (NYSE: ING  ) certainly have their charms. But investors who think they've missed the AIG story should probably do a bit more due diligence. Some of the easy money has already been made, but that doesn't mean there isn't still something left on the table.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned.


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  • Report this Comment On July 09, 2009, at 10:31 AM, BDF958 wrote:

    Had the run part right, just wrong direction. I hope AIG works out it's issues.

    But when dealing with this one, earnings don't matter.

    Positive earning could be achieved by having their CEO go out into their parking lot and selling Lemonade. They dont have an earnings problems they have an asset and liabilities problem. Yes, positive earnings are better than negative earnings. But lets not kid ourselves, or your readers that that is the driver of their performance, issues and ultumately, one would hope, their stock price.

    And yes, this has occured over the past several decades, not yesterday. Nnot one for giving credit to company's who managed to build their "success" on a bunch of mirages, and then, when it all falls appart, we say " it has been successfull over many years? No not really, just gave everyone that illusion.

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