Shares in American International Group rose almost 7% in Monday’s extended market session as the insurance giant announced a plan for the divestment of its life and retirement business and named a new CEO.
AIG (AIG) said the separation from its life and retirement business will create a simplified corporate structure and unlock significant value for shareholders by establishing two independent companies. The insurer added though no decision has yet been made how to exercise a full separation.
In a separate statement, AIG announced that its Board of Directors has named President Peter S. Zaffino as Chief Executive Officer of AIG, effective March 1, 2021. Zaffino will replace Brian Duperreault who will become Executive Chairman.
“Over the last three years, we have taken significant action to de-risk AIG and position the company for profitable growth, including fortifying General Insurance, diversifying Life & Retirement, significantly strengthening AIG’s capital and liquidity position, and building a world-class team,” said outgoing AIG CEO Brian Duperreault. “This foundational work has positioned AIG to pursue a separation of Life & Retirement enabling both companies to prosper as stand-alone entities.”
In addition, AIG provided an update on its general insurance catastrophe losses, including COVID-19 catastrophe-related losses, for the quarter ended September 30, as well as results of its life & retirement business. The insurer said that third-quarter catastrophe loss estimates, net of reinsurance, in its general insurance segment totaled $790 million, before tax, and includes $185 million of estimated catastrophe losses for claims related to COVID-19. The non-COVID-19 catastrophe losses of $605 million incurred in the third quarter related to windstorms and tropical storms in the Americas and Japan, as well as wildfires on the west coast.
AIG also recorded a $9 million pre-tax charge in its life & retirement segment following the results of its annual actuarial assumption update, which included lower interest rate and revised policyholder behavior assumptions. The insurer is scheduled to release its third quarter financial results after the market close on Nov. 5. (See AIG stock analysis on TipRanks)
Wells Fargo analyst Elyse Greenspan reiterated a Buy rating on the stock with $39 price target (25% upside potential), saying that shares should respond positively as with the divestiture, AIG could achieve a higher multiple for its property & casualty (P&C) entity.
“AIG could look into an IPO, spin-off or potential sale,” Greenspan wrote in a note to investors. “Our sense is the preferred route would be either an IPO or sale, so AIG could monetize its life business.”
The analyst added that valuation remains attractive and as a result of the preannounced losses raised her Q3 EPS estimate to $0.43 (from $0.28) as catastrophes (including Covid-19) are expected to be $790 million, lower than her $1.1 billion estimate.
AIG scores a Strong Buy analyst consensus with 6 Buys and 2 Holds. With shares down 39% this year, the $38.14 average price target, indicates 22% upside potential over the coming year.
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