Insurance Weekly Notes: AIG, MetLife

+3.51%
Upside
75.34
Market
77.98
Trefis
AIG: American International Group logo
AIG
American International Group

The trial to decide on the legality of AIG’s (NYSE:AIG) bailout during the financial crisis continued this week with a few important testimonies. MetLife (NYSE:MET), on the other hand, maintained its stance against being considered a non-bank systematically important financial institution (SIFI).

Below we review the week ended October 10, 2014 for the two insurance companies.

AIG

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The hearing at the U.S. Court of Federal Claims focusing on the bailout received by AIG from the Federal Reserve Bank of New York during the financial crisis continued this week. Ben Bernanke, who was chairman of the Federal Reserve when the bailout was handed out, testified this week. Mr. Bernanke contended that government’s offer to the AIG board was the best deal offered at the time and that the company had to be saved to prevent the collapse of the entire financial system. [1]

Also testifying in the lawsuit was Timothy Geithner, former Treasury Secretary and chairman of the New York Federal Reserve Bank at the time. He argued that as the company had not attracted private investors, the government had the authority to act. [2] The trial is a result of the lawsuit filed by Starr International Co., a firm that controlled largest stake in AIG during the crisis and is headed by former head of AIG Maurice R. “Hank” Greenberg.

AIG’s stock traded down by over 6% last week, largely due to market movements. We have a price estimate of $52 for AIG’s stock, valuing the company at $75 billion compared to the current market cap of about $72 billion.

See our complete analysis of AIG here

MetLife

After the Financial Stability Oversight Council’s (FSOC) decision last month to preliminarily designate MetLife as a non-bank SIFI, the company strongly opposed it. In a press release the company argued that the imposition of bank-like capital rules on life insurance companies would hinder the availability of better financial products for the American population. The company also mentioned that it would use all possible remedies available under law to challenge the decision. [3]

Following sharp criticism from the financial industry, U.S. regulators agreed earlier this week to review the case for the designation of financial institutions as non-bank SIFIs. The FSOC also reiterated that the process of making a decision on whether to apply the label on MetLife will continue as planned. MetLife is set to get a hearing in the coming weeks. [4]

MetLife’s stock followed a downward trajectory through the week, ending over 6% down at the close of Friday’s trading. We have a price estimate of $59 for the company’s stock, translating into a valuation of $67 billion compared to the current market cap of around $56 billion.

See our complete analysis of MetLife here

Notes:
  1. A.I.G. Had No Better Offer, Bernanke Testifies in Trial, NYT []
  2. Geithner Testifies That Government Had Right to Act to Avert A.I.G. Bankruptcy, NYT []
  3. MetLife Statement on Preliminary SIFI Designation, MetLife Press Release []
  4. U.S. Regulators to Review ‘Systemically Important’ Label Process for Financial Firms, Wall Street Journal []