After some self-inflicted wounds, favorable trends in the insurance industry have helped multi-line insurance giant American International Group
Late last week, during its fourth-quarter and full-year earnings announcement, AIG declared 2006 a "remarkable year beginning with the resolution of our significant regulatory challenges and ending with excellent financial results." Investors appear to agree, as the stock is trading just below its highs for the year. Results were strong -- industry metrics, including net premiums written (up 7.2%), net premiums earned (up 6.5%), and net investment income (up 41.3%), exceeded those posted by most of the competition.
The favorable results led to annual net income growth of 34%. Management is also feeling more confident about future stability, as it announced an $8 billion stock buyback and plans on increasing the stock dividend 20% annually as long as current favorable trends continue. The end to regulatory inquiries has played a part, but so has Mother Nature; a lack of major hurricanes and other disasters caused the combined ratio to fall from an underwriting loss (121.39, including last year's catastrophes) to 91.69.
AIG is one of the largest insurance companies around and is diversified across a number of business segments, including life insurance and retirement services, property and casualty, reinsurance, lease financing, and asset management. It also plays on a global scale, which sets it apart from other insurers. For example, most of its life insurance business is carried out in Asia, where it recently posted double-digit earnings growth and faces further compelling expansion prospects.
For a better indication of the types of insurance AIG is involved in, the company compares itself to other diversified insurers such as Metlife
Regulatory woes are the primary reason AIG shares significantly underperformed the market for the five-year period ending in 2006. But prior to 2000, the stock was a stellar performer, and it would still be a 30-bagger had you purchased the shares in the mid-1980s and held them until today. Investors would be well served if the company can regain a glimmer of its former glory, which it may be in the process of doing. Stay tuned.
For related Foolishness:
Aflac is a Motley Fool Stock Advisor recommendation. You can find out why with a 30-day free trial to the Gardner brothers' market-beating service.
Fool contributor Ryan Fuhrmann is long shares of Aflac but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.