AIG recorded $309M of impairments in 2012 to add to $312M in 2011 due to death benefits payments as people lived longer than expected. So-called life-settlement contracts are the opposite of traditional life insurance and cost the compay more as people live longer. AIG has made clear it's not focusing on expanding the business.
AIG was downgraded to equal-weight from overweight by Evercore Partners, saying the firm would require good execution on expenses and underwriting to meet its targets for 2013.
The boutique consulting firm continues to have a positive bias on AIG and raised the target price of the stock from $40 to $42.
Through divestments, AIG has accumulated surplus funds, and after buying back a large amount of stock in 2012, the company is buying back higher-yielding debt securities to save on interest expenses. The company ended the 4th quarter with $16.1 billion in liquidity at the parent company, up from $11.1 billion at the end of the 3rd quarter, primarily due to the sale of AIA shares. In a perfect world, AIG would be able to be far more aggressive and continue to buy back stock with the price so far below intrinsic value.
Tracking Seth Klarman's Baupost Group Holdings - Q4 2012 Update:
AIG is a large 7.45% position established this quarter at prices between $30.68 and $37.21. The stock currently trades just outside that range at around $38.50. The substantial new stake indicates a clear bullish bias.
AIG is "a once-in-a-generation opportunity," according to Bernstein, predicting a revaluation of the shares now trading for about 0.5x book value. Bernstein compares post-bailout AIG to a "demutualized" insurer - think MetLife, whose former CEO happens to be AIG's current one, Bob Benmosche
Now AIG is held by many large hedge funds and money managers. In fact, Factset reported in November, 2012 that among the top fifty hedge funds cumulatively, AIG was the fourth largest holding
The industry as a whole battled challenging conditions for much of last year but is already moving in a more positive direction in 2013, which bodes well for companies such as American International and Hartford Financial Services Group Inc. Profitability was not easy to come by last year, prompting many insurers to restructure operations and improve efficiency.
AIG spun-off many of its non-core assets and still trades for well below book value.