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AIG Inks Deal to Intensify Focus on High Net Worth Clients

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Zacks Equity Research
·4 min read
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American International Group, Inc. AIG recently teamed up with Safeco Insurance and Heritage Insurance Holdings, Inc. HRTG. While Safeco Insurance being part of Liberty Mutual Insurance company offers coverage for personal automobile, homeowners and specialty products across the United States, Heritage primarily operates as a super-regional property and casualty insurance holding company.

Through the deal, AIG intends to benefit agents of AIG Private Client Group (PCG) —a unit of AIG’s member companies. Both Safeco Insurance and Heritage will strive to efficiently transition certain parts of AIG’s personal insurance business in the form of improved product offerings, which in turn, will benefit the respective upper middle market agents and customers.Subject to customary approval, the transition is likely to commence in fourth-quarter 2020. 

We believe the latest move by AIG highlights its constant efforts to build stronger relationships with high net worth clients and distribution partners. Further, the company has been taking steps to increase focus on high net worth segment of the United States, where PCG already holds a market-leading position.

Finally, Syndicate 2019, which AIG had planned to introduce through the Lloyd’s market last year in October, got a nod last month for commencing underwriting operations. In addition to AIG’s diversified product offerings, the launch is likely to benefit PCG’s high net worth clients with exposure to enhanced products and risk management solutions offered through the Lloyd’s market.  Further, the latest deal with Safeco Insurance and Heritage not only enhances AIG’s general insurance portfolio but also enables it to focus on high growth areas.

Other Strategic Efforts

Moreover, AIG has been streamlining its core insurance operations and restructuring businesses by axing operations, thereby enhancing capital allocation and operating leverage. This month, it completed the divestiture of a majority stake in its legacy specialist run-off company, Fortitude RE. We believe by selling Fortitude Re, AIG will let go of its legacy liability related to the insurance portfolio that includes run-off management solutions for long-dated, complex risk policies.

These were non-core businesses for AIG with lower return and high-risk characteristics, which could potentially harm its performance in the days ahead.

The company has also been striving relentlessly to offer long-term retirement benefits for retireesby rolling out several enhanced retirement solutions. These initiatives are likely to drive results for the company’s Life & Retirement segment in the days ahead.

Additionally, AIG continues to execute initiatives focused on organizational simplification, operational efficiency and business rationalization. Such efforts will result in strict cost control, which will provide cushion to its operating margins.

However, shares of this Zacks Rank #3 (Hold) company have lost 43% in a year compared with the industry’s decline of 26.7%. Nevertheless, we believe the company’s strong fundamentals are likely to drive its shares going forward.

Stocks to Consider

Some better-ranked insurance stocks include MGIC Investment Corporation MTG and Kinsale Capital Group, Inc. KNSL. While Kinsale Capital sports a Zacks Rank #1 (Strong Buy), MGIC Investment carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

MGIC Investment and Kinsale Capital have a trailing four-quarter positive earnings surprise of 13.42% and 3.44%, on average, respectively.

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MGIC Investment Corporation (MTG) : Free Stock Analysis Report
 
American International Group, Inc. (AIG) : Free Stock Analysis Report
 
Heritage Insurance Holdings, Inc. (HRTG) : Free Stock Analysis Report
 
Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report
 
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