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Investment Overview for AIG (NYSE:AIG)
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Below we look at the key drivers for AIG with potential upside or downside to the AIG's stock price.
- Property & Casualty Premiums In Asia Property & Casualty premiums in Asia account for a third of the premiums earned by the property and casualty division. Trefis expects that AIG will continue to expand its presence in the Asia-Pacific region, increasing premiums from under $11 billion in 2012 to over $20 billion by the end of the Trefis forecast period. However, if the company is unable to capture additional share as other insurers also focus in the fast-growing region, AIG's Asia P&C premiums may only reach about $17 billion. This would also likely result in P&C investment assets only reaching about $175 billion by the end of the Trefis forecast period, versus our current forecast of about $200 billion. This is because the company's invested assets are highly correlated to premium income, given that it invests its premiums. Should this occur there would be a downside of about 5% to the Trefis price estimate for AIG's stock.
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American International Group, Inc. (AIG) is a leading provider of insurance and retirement solutions. The company serves individual and commercial customers primarily in the U.S., Canada, Europe and Asia. AIG's primary products include property and casualty (P&C) insurance, life insurance and retirement solutions.
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Growth in global property & casualty market will present significant opportunity
The property and casualty insurance market was fairly resilient throughout the global economic downturn. Despite losses on the investment side, insurers had more than enough capacity to meed demand. While premium volumes declined in the U.S. and Europe, they rose in other regions. Growing economies such as India and China are expected to boost the property and casualty insurance market, which should provide healthy revenues for AIG with its global footprint.
Modest growth in life and health insurance market
Growth in the life and health insurance business continues to be impacted by the current higher levels of unemployment and it is possible that individuals may further reduce or eliminate coverages in response to financial pressures. Accordingly we expect only modest growth in the life and health insurance market in the near-term.
Investment losses should subside
The financial crisis of 2008-09 caused financial services firms to book heavy losses on their invested assets. Insurance companies typically depend on investment income to pay off their liabilities (insurance benefits, claims and dividends). Heavy investment losses during the financial crisis caused operating margins to drop significantly. While 2012 and 2011 was a soft year for investment returns relative to 2010, we do not expect the company to experience further losses on its investment portfolio.
Trefis Forecast Rationale for AIG's Aircraft Leasing Revenues
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It represents the total revenues from AIG's aircraft leasing business which is controlled by its subsidiary International Lease Finance Corp., ILFC. ILFC is one of the world's largest aircraft lessors. It leases Boeing and Airbus aircraft to major airlines worldwide.
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The revenues increased steadily from $4 billion in 2006 to $5.3 billion in 2009 but decreased to $4.7 billion in 2010 as the company sold off some of its assets. Aircraft Leasing business has been one of the most successful business for AIG. The revenue rise can be attributed to the larger aircraft fleet and higher lease rates. In 2010, ILFC had to sell a portion of their aircraft portfolio in order to meet its financial and operating obligations. The sale of aircrafts resulted in loss and decrease in revenues. Going forward, we expect the revenues to be impacted by the current cash crunch faced by the company which will also restrict its ability to purchase any new aircraft in immediate future. In the long-term we expect the ${forecast} to reach $6 billion by the end of the Trefis forecast period.
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Trefis considers following factors for its forecast
- Sustained increase in air travel
- Air travel is registering a boom in the developing countries primarily as a result of falling air travel fares and supportive policy changes and deregulation. This will force airlines to increase their fleet size and thus will boost revenues of aircraft lease industry.
- Rapid increase in Low Cost Carriers in countries like India and China.
- There is a shift towards leasing from traditional approach of buying an aircraft.
- Leasing an aircraft offers significant reduction in risk, thus airlines around the world are more inclined towards leasing an aircraft than buying it. It also helps them to better manage their portfolios.
- ILFC is the market leader in the global aircraft leasing industry
- ILFC, together with GE commercial Aviation Services (GECAS), is the largest player in the global aircraft leasing industry.
- ILFC, backed by AIG, has the capability to provide a range of aircraft types, secured loans, and other financial services and hence is better positioned to sever the customer than its competitors.
Back to Company OverviewHow Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
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