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American International's Strategic Divestures to Fuel Growth


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On Sep 26, 2016, we have issued an updated research report on American International Group Inc. (AIG - Analyst Report) .

The New York-based company is primarily engaged in the provision of insurance, financial and investment products and services to both businesses and individuals in over 130 countries. Its buoyant inorganic growth story involves numerous mergers, acquisitions and strategic alliances.

In order to drive the bottom-line growth, the company has taken up several cost-control initiatives. This gradual yet effective reduction in expenses has boosted the company’s operating efficiency. The company has reduced operating expenses by 11% during the first six months of 2016.

Further, the company’s financial strength supports it to deploy capital effectively. The insurer remains focused on enhancement of shareholders’ value. To this end, it has returned $7.2 billion of capital to its investors in the first half of 2016. The company also expressed its intention to reduce hedge fund allocation roughly by 50% in order to achieve its capital return target by the end of 2017.

Divestures are another preferred strategy of the company to focus on businesses generating higher return on equity. The company axes its unprofitable and underperforming operations to save capital for the continuous restructuring efforts it takes up. The company has successfully completed more than 50 asset sales and divestures since 2008 and generated proceeds of $90 billion from the same. Frequent operational and structural reorganization has helped the company to streamline its productivity.

However, the persistently soft interest rate has spelt doom for several insurance sector bigwigs like CNO Financial Group Inc (CNO - Analyst Report) , James River Group Holdings Ltd (JRVR - Snapshot Report) , ageas SA/NV (AGESY - Snapshot Report) to name a few. This weak interest rates have drastically lowered net investment income of these companies and American International is no exception to the trend.

Moreover the company’s global market share has been largely hampered by its enormous divesture initiatives. The loss from discontinued operations as well as catastrophe losses have adversely impacted the company’s bottom line. Apart from these, unfavorable reserve development in last four consecutive years have weakened the company’s capital base. Negatives like these have led to a rating downgrade from A.M Best.

AIG presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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