AIG Earnings: Further Improvement in Commercial Lines

AIG AIG delivered a solid third quarter, in our view, with the adjusted annualized return on equity of 8.5% showing the company remains on the doorstep of adequate returns. We are encouraged by the continued progress in improving P&C underwriting results, as we see this as the critical factor in improving returns over time. We will maintain our $66 fair value estimate for the no-moat company and see shares as fairly valued.

The reported combined ratio for P&C operations improved significantly year over year, although that was partially due to a falloff in catastrophe losses. However, even the underlying combined ratio (which excludes catastrophe losses and reserve development) improved to 86.3% from 88.4% last year and improved sequentially. The improvement came almost entirely from commercial lines. We’ve seen underwriting results for AIG and commercial peers flatten out this year as we move deeper into the hard market. In the quarter, AIG bucked this trend in a positive manner. In our view, this suggests that there could be room for further internal improvement from management’s efforts to improve underwriting discipline.

The life and retirement segment reported a 11.4% annualized adjusted return on equity, roughly in line with results we’ve seen from this business earlier in 2023. Management reiterated its desire to work toward a full separation of this business but didn’t offer any details on its next step. We would prefer to see management move quickly toward this goal, as we think a full separation will allow a clearer view of the progress of P&C operations.