New Equity Position: American International Group Inc. (AIG, Financial)
Third Point initiated a position in AIG (AIG, Financial) during the Fourth Quarter. AIG is a global P&C insurer that, until recently, held a life insurance subsidiary, Corebridge. AIG has undergone a massive overhaul since the global financial crisis. The current executive team, who started in 2017, has made significant progress turning around the P&C insurance operations that 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. As a result, AIG’s P&C operations have gone 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.
Alongside the operational turnaround, AIG is repositioning itself as a pure-play P&C insurer via the IPO of Corebridge which was completed in September 2022. This is an important catalyst for the business. First, we expect that $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. Second, 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.
Today, AIG trades at 1.1x book value (excluding Corebridge) compared to pure-play global P&C insurance peers which trade at a 50% multiple premium. AIG’s strong fundamental operating results coupled with the catalysts following the separation of Corebridge position should help AIG close that substantial valuation discount.
From Daniel Loeb (Trades, Portfolio)'s Third Point fourth-quarter 2022 letter.
