American International Group’s stock (NYSE: AIG) has gained around 7% over the last 12 months, while the S&P500 is up by over 25% over the same period. American International Group’s peer Travelers (NYSE: TRV) is up 25% in the past year. So what are some of the factors driving AIG’s stock of late?
AIG’s financial performance has been reasonably strong. The company posted a better-than-expected set of earnings over Q3 2024 with adjusted earnings rising 18% to $1.23 per share led by strong underwriting as well as higher returns on investments. The Global Commercial business was the key driver of results, with net premiums rising 6% year-over-year on a comparable basis, led by the Global Commercial Lines which includes property, casualty, and specialty coverage which saw a strong retention rate of about 88% while adding $1.1 billion of new business. Insurance players have also benefited from strong equity markets, which have helped them record stronger returns on their investments. AIG saw its net investment income rise 14% to $973 million over the last quarter.
AIG is one of a handful of stocks that have increased their value in each of the last 4 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 54% in 2021, 14% in 2022, 10% in 2023, and 10% in 2024. While AIG stock has seen lackluster growth over recent years, the Trefis High Quality Portfolio, with a collection of 30 stocks, has provided better returns with less risk versus the benchmark S&P 500 index over the last four year period; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, what’s the outlook like for AIG?
AIG has been increasingly focusing on property and casualty insurance following the spinoff of its life insurance and retirement business. The move could help the company improve its growth rates and profitability, given that these sectors have a shorter-term horizon which enables insurance companies to have more flexibility to adjust premiums more often to account for various risks, unlike life insurance where premiums are locked over decades. The property and casualty insurance also caters to higher-margin, niche areas where demand is rising. There are other trends that could help AIG stock. The recent election of Donald Trump to the U.S. presidency could benefit insurers, as a potentially lower regulatory burden and tax cuts could improve profitability. AIG’s capital returns program also remains attractive, with the company repurchasing about $1.5 billion of common shares in Q3, while its overall capital returns to shareholders over the first nine months of 2024 stood at $6 billion. This could help to drive per-share earnings growth. We value AIG stock at about $90 per share, about 24% ahead of the current market price. See Trefis’ estimate for American International Group’s valuation.
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