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Undervalued, No-Moat AIG Looks to New CEO

Undervalued, No-Moat AIG Looks to New CEO

Brett Horn: We don't believe that AIG has a moat, but we do believe that shares are undervalued. AIG struggled in the years following the crisis and continues to earn subpar returns. While previous management teams did affect some positive change in our view, the one thing they have not been able to fix is the company's underwriting results.

AIG now has a new CEO, Brian Duperreault, who has not only had success in insurance generally but in the very lines that AIG needs to remediate. We estimate that the company will need to achieve only a 97% combined ratio in its commercial P&C operations in order to generate a 10% adjusted ROE. This 97% level would still be worse than its peer group, but we believe some reversion toward peer results is reasonable now that the company is under capable management.

AIG trades at roughly half the price/book multiple of the industry. Based on peer multiples, we estimate that there could be as much as 50% upside in the shares if AIG was able to hit that 10% mark.

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About the Author

Brett Horn

Senior Equity Analyst
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Brett Horn, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers insurers and credit bureaus. He also oversees the equity research team’s stewardship rating methodology.

Before joining Morningstar in 2006, Horn worked in the banking industry for about a decade, most recently as a commercial loan officer for First Bank, where he was responsible for underwriting loans and managing relationships with middle market clients. Before that, Horn worked for Mizuho Corporate Bank, where he managed loan portfolios and client relationships, primarily with Fortune 500 companies.

Horn holds a bachelor’s degree in business administration, with a concentration in finance, from the University of Wisconsin and a master’s degree in business administration from the University of Illinois. He also holds the Chartered Financial Analyst® designation. He ranked first in the business and industrial services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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