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Why You Should Retain American International (AIG) Stock

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On Jan 17, 2017, we issued an updated research report on American International Group, Inc. (AIG - Free Report) .

Month to date, shares of AIG have appreciated 1.6% compared with 0.96% gained by the Zacks categorized Multi Line Insurance industry. This outperformance was fueled by AIG’s strong underwriting results and clearly indicates shareholders’ confidence on the stock. Increase in interest rate in Dec 2016 also led to the stock price rally.

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The New York-based holding company provides a range of global insurance and insurance-related activities through its subsidiaries. We note that the company engages in strategic divestures to streamline its core operations. Since 2008, AIG has completed over 50 asset sales and divestures, generating proceeds in excess of $90 billion. After the sale of Advisor Group in May 2016, AIG closed the sale of its mortgage insurance unit – United Guaranty Residential Insurance Company – to Arch Capital Group Ltd. (ACGL - Free Report) in Jan 2017.

AIG has also been taking up several expense-reduction initiatives in order to boost its bottom line. Simplification of its businesses and processes as well as investment in technology and infrastructure has been a major means of controlling operating expenses. During the third quarter, the company launched a technology-driven solution to serve the $80 billion U.S. small-to-middle-market. AIG reduced operating expenses by 11% during the first six months of 2016 and targets to achieve $1.4 billion in gross operating expense reductions through the end of 2017.

AIG’s financial strength comes from its solid cash position and commendable debt servicing capacity. At the end of the third quarter, the company’s balance sheet was strong with $8.6 billion of parent liquidity, which was above its targeted range of $6–$8 billion. The company had financial leverage ratio below 20% in the same period. During the first nine months of 2016, AIG reduced its hedge fund portfolio by $2.7 billion to free up nearly $800 million in capital in its life subsidiaries.

However, continuous asset disposals for debt repayment lowered AIG’s global market share and also affected its operating earnings. As a multi line insurer, AIG remains exposed to severe catastrophe losses. In fact, AIG estimates losses from Hurricane Matthew for the fourth quarter of about $250 million, roughly two-thirds of which has been borne by the Commercial segment. The Consumer segment has to bear the remainder. The company has to incur substantial losses from discontinued operations as well.

Zacks Rank & Stocks to Consider

AIG presently carries a Zacks Rank #3 (Hold).

Investors interested in stocks from the same space might also consider The Hartford Financial Services Group, Inc. (HIG - Free Report) , and Kemper Corporation (KMPR - Free Report) . Both of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Hartford Financial offers insurance and financial services to individual and business customers in the U.S. The company delivered positive surprises in two of the last four quarters but with an average miss of 11.69%.

Kemper Corporation is a diversified insurance holding company that offers property and casualty, as well as life and health insurance to individuals and businesses in the U.S. The company delivered positive surprises in one of the last four quarters but with an average miss of 47.62%.

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