In my opinion, the bottom line is that AIG needs to reinvest its float in more accretive areas than treasuries yielding 3%.
They should be looking to move into more lucrative specialty lines of insurance, aquire smaller companies, and invest in higher-yielding instruments (many EU, Chinese, Russian corp bonds are beaten down unfairly at the current time). There has to be a booming market for insurance against cyber attacks, etc.
suggests to me that people expect Yellen will stay the course of expected interest rate hikes in September.
Interest rates hikes are very helpful to insurance companies, especially those who invest in as much government paper as AIG does. We have become so accustom to low interest rates, that it is hard to visualize a normalized environment.
The Apple iPhone has never existed in an economy with an interest rate hike. Think about that for a second.
In my humble opinion.....
global government bond rout = higher interest rates on government debt = higher return on invested float for insurance companies.
I usually don't pay much attention to Seeking Alpha articles, but this guy made a pretty compelling argument:
The charts only include the fixed income assets and the related net investment income from these specific assets (full disclosure--see the linked 10-Q and 10-K's for the company's total assets and total net investment income for each period-end). I also included short-term investments within the analysis due to the fact that the company includes the short-term investment income within the net investment income for fixed maturity securities. This is a simplistic approach to analyzing the interest rate sensitivity of AIG's asset portfolio, but it provides valuable insight into how higher rates will benefit the company's earnings for the current investment portfolio.
Based on the analysis there are a few observations that can be made:
"The current net investment income for fixed income securities has been pressured by the low rate environment, as seen by the low 3.95% for Q1 2015.
If rates were to rise and the company were able to achieve the average percentage for 2013 and 2014, based on the Q1 2015 portfolio AIG would have the potential to increase the net investment income by 4% (or ~$460 million).
If rates were to rise and the company were able to achieve the average percentage for 2006 and 2007, based on the Q1 2015 portfolio AIG would have the potential to increase the net investment income by 17% (or ~$1.9 billion).
This type of benefit to the net investment income will not be seen instantly, but instead the company will see the benefit over an extended period (as new money yields increase). The rising interest rate environment is a tremendous catalyst that will greatly impact AIG in many different ways."
We are going much higher folks
That AIG shares could possibly reach book value by the end of the year.
I don't know if anyone noticed, but LinkedIn dropped 25% yesterday after reporting bad earnings. A case of reality catching up to a way overpriced stock. But what does that have to do with AIG?
Well, if the tech crash of the late 90s is any indication, it may have a lot to do with AIG. You may recall during the bull market prior to the crash, "old industry" companies like Berkshire Hathaway significantly underperformed the market. Once the market plummeted, value stocks that had lagged during the entire bull run quickly caught up to fair value.
Not saying that same cycle is going to repeat here, but when you consider that AIG earnings will benefit greatly from increased interest rates (and they are coming), buybacks are increasing, and the stock is still less that 75% of book value, and I think you have the recipe for a strong move to fair value in a quicker time period than many might be expecting. Will come back to this post on December 31st.
to $3.5B per quarter. This is incredible.
Japan anticipates that by 2030 clean energy such as solar and hydro will generate slightly more of the nation’s electricity than nuclear power plants.
Clean energy sources will supply as much as 24 percent of Japan’s electricity in 15 years, while atomic power will account for as much as 22 percent, according to a draft report from the Ministry of Economy, Trade and Industry on what Japan’s electricity mix should look like by 2030.
Though the eagerly-awaited report -- the result of months of study by a ministry panel debating the electricity mix -- continues to see a need for nuclear, the draft proposes a diminished role compared with before the Fukushima disaster of March 2011. Nuclear power accounted for more than a quarter of Japan’s electricity generation before the meltdowns at the Fukushima Dai-Ichi reactors.
Even the 22 percent level is doubtful for a nation with one of the world’s oldest nuclear fleets and where the majority of the public has opposed atomic generation since Fukushima, environmental group Greenpeace, which campaigns against nuclear power, said in a statement.
Nuclear’s role has been the central focus of the panel’s discussions. The 2011 disaster triggered strong opposition to atomic power among the public, while the subsequent spike in electricity prices has seen business groups lobby intensively for the nation’s nuclear reactors to resume operations.
Nuclear provided about 29 percent of Japan’s electricity in fiscal 2010, while clean energy sources supplied 9.6 percent with most of that coming from hydro. None of Japan’s commercially operable nuclear reactors are working at the moment.
If all 24 nuclear reactors currently under review for a restart by the country’s nuclear watchdog are allowed to switch back on, they would still not be able to generate more than 16 percent of Japan’s power, Greenpeace estimates. At least 10 more reactor units need to resume operations to reach the government’s target for nuclear, the
This company is not going bankrupt folks. Would Siemans sign a 10 year deal with a shady company? No they wouldn't.