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Last week, American International Group Inc. (AIG - Analyst Report) wrote off the US government’s stake in the company by repurchasing the final warrants from the US Treasury for $25 million. This makes the company an independent insurer once again.

AIG had wound up the $182.3 billion government bailout loan in Dec 2012. The company had received the loan in Sep 2008. The US government earned an additional profit of $22.7 billion, apart from the bailout loan amount from AIG.

However, the Treasury still owned warrants that could help it possess about 2.7 million shares of the company at $50 per share and another set of 150 shares at $0.00002 per share, issued in 2008 and 2009, respectively. Last week, AIG bought both sets of warrants for a total of $25 million.

Post the full repayment of its government bailout loan last year, AIG is steadily moving toward attaining capital flexibility. This is reflected by its financial leverage that declined to 22% currently from 31% at 2010-end, whereas operating return on equity (ROE) improved to 7.2% at 2012-end from 2.7% at 2011-end. Meanwhile, the latest warrant buyback, which closed the final chapter of AIG receiving government aid, should further improve the company’s capital leverage.

In an attempt to lower its risk profile, AIG also intends to repurchase bonds worth $1.25 billion from the open market. Additionally, the sale of its aircraft leasing unit – International Lease Finance Corp. (ILFC) by mid-2013, will likely improve AIG’s leverage, compared with its peer group. AIG’s ongoing efforts and positive results have also helped it earn the confidence of the shareholders’ and ratings agencies.

While any robust growth appears overly ambitious at present, we believe a positive turnaround in the global economy and an improved macro scenario is likely to pave the way for significant growth of AIG. Currently, the company carries a Zacks Rank #3 (Hold).

Meanwhile, other outperformers of the insurance industry include XL Group Plc (XL - Analyst Report), Aegon NV (AEG - Snapshot Report) and EMC Insurance Group Inc. (EMCI - Snapshot Report), all of which carry a Zacks Rank #1 (Strong Buy).

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