Dan Loeb’s multi-billion dollar Third Point LLC hedge fund added shares of American International Group Inc. AIG last quarter, saying that the company is repositioning itself as a “pure-play P&C insurer.”
What Happened: Loeb announced the stake in a fourth-quarter letter to investors, praising AIG for making significant progress turning around the P&C insurance operations, an overhaul that started in 2017, after the insurer previously suffered from unprofitable underwriting, significant loss volatility, and inadequate reserving.
“Over the past five years, AIG has professionalized the underwriting team, meaningfully reduced gross limits, restructured its reinsurance programs, and pruned the portfolio for profitable growth,” Loeb said.
The company’s P&C operations have grown from an unprofitable 117% combined ratio in 2017 to a 92% combined ratio in 2022 and have seen seven consecutive quarters of favorable reserve development.
On his “pure-play” P&C insurer mention, Loeb said Corebridge Financial Inc’s CRBG IPO in September 2022 was an important catalyst for AIG. Third Point expects $11 billion of proceeds from the sell-down of AIG’s remaining Corebridge stake will be primarily redeployed towards share repurchases, resulting in an ability to buy back a quarter of the company over the next two years.
Loeb also said there is an opportunity to streamline the corporate expense base with the simplification of AIG’s business, as AIG no longer operates within the conglomerate structure that historically governed its operations.
The asset manager said that AIG trades at 1.1 times book value relative to its pure-play P&C insurance peers, which trade at a 50% multiple premium.
He mentioned that AIG’s strong fundamental operating results coupled with catalysts following the separation of its Corebridge position should help the company close that substantial valuation discount.
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