American International Group’s Stock Is Trading Below Its Intrinsic Value

AIG: American International Group logo
American International Group

American International Group’s stock (NYSE: AIG) has lost 15% YTD, while the S&P500 is up 8% over the same period. Further, at its current price of $54 per share, it is trading 20% below its fair value of $67 – Trefis’ estimate for American International Group’s valuation

The company outperformed the consensus estimates in the first quarter of 2023, despite a 26% y-o-y drop in the total revenues to $10.98 billion. It was mainly due to a change in net realized gains from $3.6 billion to -$1.9 billion, offsetting the 19% increase in premiums and a 9% rise in net investment income (NII). The premiums figure mainly benefited from growth in North America group insurance, followed by a jump in the institutional insurance sub-segment of the life & retirement unit. Further, the net investment income grew due to a higher rate environment and higher available-for-sale fixed maturity sales. On the cost front, the total expense figure increased 22% y-o-y, primarily due to higher policyholder benefits and losses. Overall, the adjusted net income decreased from $4.2 billion to $23 million.

The top line grew 8% y-o-y to $56.4 billion in FY2022. It was mainly due to a change in total net realized gains from $2.15 billion to $8.99 billion, partially offset by a 19% y-o-y drop in NII. On the expense front, total benefits, losses & expenses as a % of revenues decreased from 76.7% to 74.7% over the same period. It led to a 9% improvement in adjusted net income to $10.25 billion.

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Moving forward, we estimate the American International Group revenues to remain around $50.81 billion in FY2023. Additionally, AIG’s adjusted net income margin is likely to decrease from 18% to around 12%, leading to an adjusted net income of $6.1 billion. This coupled with an annual EPS of $8.28 and a P/E multiple of just above 8x will lead to a valuation of $67.

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 Returns May 2023
MTD [1]
YTD [1]
Total [2]
 AIG Return 1% -15% -18%
 S&P 500 Return -1% 8% 85%
 Trefis Multi-Strategy Portfolio 0% 8% 240%

[1] Month-to-date and year-to-date as of 5/8/2023
[2] Cumulative total returns since the end of 2016

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