Well, I’d put AIG’s Q3 results firmly in the trick basket. The big surprise for me was the nearly $1 billion income tax benefit item in Q3. I wasn’t expecting that.
Income before tax was distinctly lacklustre. The P&C technical result was only marginally worse whilst P&C investment income added just over $1 billion of incremental income before tax. Life & retirement only added $400 million of incremental delivered income before tax. The hodgepodge of the other segment had a negative impact of over $1 billion of incremental income before tax due to the marginal increases in GCM and DIB lagging interest, corporate & legal expenses. Updated graphs for net income and the other segment for YTD to Q3 are below.
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Overall then, I wouldn’t materially change my estimates for a “normal” 2014 (although I may need to reconsider my tax assumptions) and would stick to a book value target of $70 by year end 2014 as being achievable, save any large catastrophes or unexploded bombs. One small treat from the results was the reduction in share count which should continue.
Although the risk/reward is getting more attractive after the price drop to just above $48, I will stay on the side-line as the overall market looks very frothy to me and, as a result, I am currently in risk reduction mode. The uncertainty around the other segment and the lack of clear improvement in the P&C segment may justify the AIG book multiple discount for a while yet.
This blog represents my personal views and is not reflective of the views or opinions held by any company or employer I work for currently or have worked for in the past. The views expressed herein are based solely upon publicly available data. No views expressed herein should be taken as an endorsement to take any particular course of action in the markets. The basis of this blog is that different views should be expressed and readers make up their own minds on the what they believe and act accordingly.
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