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Undervalued, No-Moat AIG Looks to New CEO

AIG's new management team should help bring the firm's subpar returns closer to peers.

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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.

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Brett Horn does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.