In the 2012 letter to AIG (NYSE:AIG) shareholders, CEO Robert Benmosche asserted that 2012 was "a year that I know will go down in AIG history as a pivotal year."
It's yet another bold statement from the brash Benmosche. But it's also hard to argue with.
Big picture: 2012 was the year that the U.S. government finished selling its direct ownership stake in AIG. It was also the year that the insurer drastically rejiggered its business and balance sheet, with moves that included selling its remaining ownership in AIA, and 90% of its aircraft-financing business. And, with the release of fourth-quarter results, it's also a year that the company shouldered one of the U.S.'s worst natural disasters, and still eked out an operating profit from its combined insurance businesses.
To be sure, the fourth quarter results didn't look terribly pretty thanks to the hit from Superstorm Sandy. However, the results do largely show the continuation of most of the positive trends that make Benmosche think that this could be AIG's "pivotal year."
Drilling down, there are at least three things that investors should focus in on and listen for in tomorrow's conference call.
- Pricing. In the earnings press release, AIG said that its property and casualty business was "benefiting from positive rate trends." That should be music to investors' ears. We've heard stirrings of better pricing in the insurance market after the years' long soft market conditions, so it's nice to hear that the trend is continuing.
- Insurance improvement. Excluding the hit from Sandy, we can spot improvements in both of AIG's major insurance business lines. Since the investment thesis for AIG rests on the idea that these core businesses are actually worth owning, we need to not only see current improvements, but be confident that future improvements are also in the cards.
- And yet, some concerns. If there were some positives to be seen in the P&C and life/retirement insurance segments, there were also some data points to be concerned about. The company is still seeing higher losses on prior years' policies and operating costs -- particularly on the P&C side -- continue to rise. There could be a silver lining on both. While the prior-year loss experience suggests that underwriting may have been too lax in the past, a more conservative approach today could mean better results in the future. And, as far as operating costs, if the company is tweaking its model and business mix, that can lead to short-term costs on the way to longer-term benefit.
Based on recent AIG conference calls, there's good reason to believe we'll get additional color on all of the above during the call. While that'll be helpful in understanding the specifics of the fourth quarter, I think it's also worthwhile for investors to step back and appreciate the progress AIG notched during all of 2012.