It’s been a big year for American International Group Inc (NYSE:AIG). After shaking off the remainder of its governmental ownership in the fourth quarter of last year, 2013 has been the true test of management’s direction for the company and its shareholders. And so far, there’s plenty for investors to celebrate. As we come to the beginning of 2013’s final quarter at the end of the week, let’s take a look back at the top five things American International Group Inc (NYSE:AIG) has done so far to boost itself and its shareholders’ value.
1. Holding off
As each quarter rolled on so far in 2013, the big question from analysts and investors alike was when the insurer would begin making capital distributions in the form of dividends and share buyback plans. We had to wait eight months for management to take the plunge, but there was a definite method to CEO Robert Benmosche’s madness.
In each of the first two earnings conference calls, Benmosche didn’t beat around the bush about his focus for the company, or that it didn’t include dividends… yet. Instead American International Group Inc (NYSE:AIG) was focused on reducing its debt burden, and in turn reducing its costs. During the second quarter alone, American International Group Inc (NYSE:AIG) reduced its debt burden by over $900 million and expect to see an annualized interest expense savings of $600 million. That savings alone covers twice the amount the company will be paying out in dividends.
2. Doubling down
American International Group Inc (NYSE:AIG) made a major move into China during the fourth quarter of 2012, with a $500 million investment in the PICC Group. With the returns on that investment reaching 10% after just a few months, the insurer sought to increase its exposure to the People’s Republic and expanded its involvement with PICC. Though China has been in the news lately for both conflicting economic data and potential threats to its high rate of expansion, the increase in American International Group Inc (NYSE:AIG)’s investment there is still a solid opportunity for the insurer.
Recent reports claim that China’s growth rate may be falling to 6%, but that’s still more than quadruple the rate at which the U.S. is expanding. Also, the country had a steadily increasing middle class that is creating a new market for both property and casualty insurance needs, as well as life and retirement solutions.
3. Hello again
The mortgage guaranty market was the business line that really got AIG in trouble during the financial crisis. So when it announced that it would be making a big push back into that segment, some investors may have had some doubts. But since its return, AIG’s United Guaranty operations have reported solid operating income, with positive trends developing for both increases in new underwriting and decreases in delinquencies. In fact, the second quarter’s results included the fact that half of all earned premiums for United were written after 2008.
With the housing market remaining steady, including increases in both sales and home prices, mortgage guaranty operations are a viable growth opportunity for AIG. As the FHA continues to pull back from the market, opening up space for private insurers to enter, the competition may be fierce. The private firms wrote a huge amount of new business during the second quarter, with five firms’ results listed below:
|Company||Second Quarter New Business|
|AIG (United Guaranty)||$14.0 billion|
|MGIC (NYSE:MTG)||$8.0 billion|
|Genworth Financial (NYSE:GNW)||$20.1 billion|
|Radian Group (NYSE:RDN)||$13.4 billion|
|Essent Guaranty||$10.0 billion|
All of the companies listed above reported increases in new business above 30% when compared to the prior year, with both AIG and Radian Group Inc (NYSE:RDN) reporting increases over 60%.