AIG (NYSE:AIG) is scheduled to announce earnings on Friday as the company continues its recovery since being bailed out by the U.S. Department of Treasury during the financial crisis in 2008. We expect the earnings to be similar to the figure of $17.8 billion in revenues reported in the first quarter last year. AIG and its competitors, MetLife (NYSE:MET), Hartford Financial (NYSE:HIG), Prudential Financial (NYSE:PRU) and Manulife Financial (NYSE:MFC) suffered considerable losses last year due to natural calamities, and we expect the company to bounce back with a strong performance this quarter. We look below at some of the factors that might influence AIG’s results for this quarter.
Boost from Developing Economies
AIG is one of the biggest property and casualty insurance companies in the world, and its Chartis division has a substantial market share in emerging markets such as India, Korea and Argentina. With strong growth expected in these countries, AIG is in a prime position to capitalize as an increasing number of people in these countries are likely to opt for property and casualty insurance, which accounts for more than half (51%) of our price estimate for AIG’s stock.
Legal Battle for Aircraft Leasing Division
International Lease Finance Corp., or ILFC, a subsidiary of AIG, responsible for leasing out aircraft to major airlines throughout the world, filed a lawsuit against its former head, Steven Udvar-Hazy, on Tuesday, 24th April, 2012, stating that the billionaire stole company secrets and customers when he started his own firm in 2010. This is likely to have affected the revenues generated through the lease of aircraft.
Improving Sales of Retirement Products
U.S. Retirement Solutions, which account for 5% of our price estimate for AIG, is seeing an improvement is annuity sales as an increasing number of people in the U.S. reach retirement age. An increasing trend in revenue generated through sales of retirement products has been observed for the last few years, and is expected to continue as the baby boomers generation reaches retirement age.
Improved Outlook from Ratings Agencies
Ratings agencies, such as Fitch Ratings, Standard & Poor’s and A.M. Best Co.  upgraded their outlook on AIG, reflecting AIG’s efforts to regain lost ground, as it seeks to buy back shares from the Department of Treasury. AIG has been looking to raise funds through debt and equity, as well as enhancing its liquidity by disposing redundant assets. The company also continues to innovate by launching new products such as CoverEdge, which is an instrument to prevent improper loans from being made.(See AIG’s United Guaranty Helps Review, Organize Loan Docs with CoverEdge)
We have a price estimate of $19.72 on AIG’s stock, about 42% below its current market price.Notes: