Despite Activists, AIG Core Seen As 'Weaker' By Analysts

Credit Suisse’s Thomas Gallagher maintained a Neutral rating for American International Group Inc AIG, while reducing the price target from $65 to $61.

The company reported its 4Q net operating loss at $1.10 per share, mainly on account of its previously announced $3.6 billion of development in the P&C business in the previous year as well as lower returns from alternatives.

“After making AIG’s normalizing adjustments highlighted in the financial supplement (i.e. cats, alternative returns, DIB/GCM, PICC investment returns, accounting refinements, WC discount rate change, IBNR claims, and PYD) the normalized EPS, as defined by the company, is $0.99 which compares to our core estimate of $1.16 for the 4th quarter,” analyst Thomas Gallagher wrote.

Related Link: Icahn Rep Paulson To Join AIG Board

The quarterly earnings miss was mainly driven by the lower-than-expected performance of the property casualty business in both commercial and personal lines.

The EPS estimates for 2016, 2017 and 2018 have been reduced from $4.85 to $4.40, from $5.70 to $5.45 and from $6.67 to $6.42, respectively.

Gallagher mentioned that the reduction in price target reflects:

• The lower earnings estimates
• A lower multiple on the life insurance business reflective of peer valuations
• The “reduction of excess capital in our sum of the parts as we believe most of the excess capital will be deployed by YE 2017”