Since the financial crisis, AIG has been diligently reducing its exposure to risky investments. It has already decreased its derivative exposure by 93% since 2008. And while there is still room to reduce its multi-sector credit default swap exposure, the company believes it currently provides “significant future upside,” but it will consider further reductions if the economics are right. Investment income also grew 21% and 14% during the fourth quarter in its P&C and L&R segments, respectively.
The insurer’s book value per share has continued to appreciate, rising 24% since 2011 to $66.38 from $53.53. A $5.5 billion increase in AIG’s cash reserves and short-term investments since September doesn’t hurt either. With the sale of its remaining AIA shares and its investment in PICC, the company realized $297 million in gains from those transactions. The company has been focused on growth, and it will most likely continue to make investments and acquisitions that help it achieve that growth.
In the end
Don’t be scared off by AIG’s reported fourth-quarter loss, as it doesn’t provide the correct picture for you. Investors should consider the steps AIG has taken to improve its position after the financial crisis. And as the top hedge fund darling, investors may begin to see an AIG investment in a different light going forward.
The article AIG Earnings: Losses Hide Real Growth originally appeared on Fool.com and is written by Jessica Alling.
Fool contributor Jessica Alling has no position in any stocks mentioned, but she will be making a CAPS call on AIG and can be reached here. The Motley Fool recommends American International Group (NYSE:AIG). The Motley Fool owns shares of American International Group and has the following options: Long Jan 2014 $25 Calls on American International Group.
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