Janney Montgomery Scott LLC analyst Larry Greenberg saidAmerican International GroupInc. will face earnings headwinds like lower investment income fromits restructuring activities and it will likely have "uneven" operatingimprovements over the next few years, but he believes that the insurer'smanagement understands the challenges ahead and what needs to be done toresolve them.
Greenberg upgraded AIG to "buy" from"neutral" after attending a meeting hosted by the insurer, where CFO SiddharthaSankaran and AIG Commercial CEO Robert Schimek talked about the insurer'sstrategy, particularly the plan to improve commercial lines underwriting. Greenbergsaid he is now more confident that the strategies the insurer will utilize toachieve better underwriting results "have a consistent alignment betweennear and longer term economics," he said in a March 30 note.
Greenberg acknowledged that he had concerns when AIGannounced its plan to largely rely on reinsurance to achieve its goal oflowering its commercial lines accident-year loss ratio by 6 points over twoyears. He learned at the meeting that the insurer will disclose along with itsfirst-quarter results the impact of all reinsurance transactions on thecomponents of underwriting results. He said Schimek clarified that AIG'sU.S. casualty reinsurancedeal with Swiss ReLtd. was "as close to a plain vanilla reinsurance transactionas one could imagine." He also said that the CFO dismissed the notion thatthe deal has related back-ended risk transfer pieces.
In addition, Greenberg believes that AIG is determined todeliver on its aim to cut general operating expenses by an additional $1.6billion by 2017.
"We thought the discussion was credible and now viewthe risk/reward profile of the stock as favorable," Greenberg said.
His EPS estimates remain at $4.65 for 2016 and $5.65 for2017.