Hurricane season is in full swing. Last year, hurricanes, led by Katrina, Rita and Wilma, caused a record loss of $57.3 billion for property and casualty insurers. American International Group, the world's largest insurer, suffered some of the biggest losses from these storms. But the prospect of another devastating hurricane season shouldn't deter investors from considering shares of the New York City-based financial-services powerhouse.
AIG has sought to insulate itself from the worst ravages of hurricanes this year. How? It has raised prices for property and casualty insurance, shifted risk to other insurers and limited coverage. Price hikes have not hurt demand. Net premiums from property and casualty insurance have climbed 9% over the past 12 months. Property and casualty insurers have the power to increase the price of their policies because more companies fear the risk of hurricane damage, says Jeff Auxier, portfolio manager of the Auxier Focus fund, which holds AIG shares.
Merrill Lynch analyst Jay Cohen expects AIG to generate strong earnings from its property and casualty business through 2007. Some of that catastrophic windfall will offset troubles elsewhere in the company. AIG has struggled to keep profits growing in its life-insurance business in Japan and Taiwan.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Still, the far-flung empire of AIG is more of a strength than a weakness, particularly in China. Most rivals have to form joint ventures and split profits with local firms to compete in China. AIG has a wholly owned Chinese insurance subsidiary, which means that the company can reap more profits from this fast-growing market than its rivals can.
Despite its already vast reach, AIG has expanded into new areas of business. The company will begin writing mortgage insurance in Canada this year. And it recently acquired a Taiwanese business insurer and a Chinese life insurer.
Investigations into AIG's accounting practices have beaten down the stock, which, at $64.13, is 38% below its 2000 high. But the company has put much of those problems behind it. It incurred a $1.15 billion charge to settle numerous regulatory complaints from New York Attorney General Eliot Spitzer and the Securities and Exchange Commission, and long-time CEO Maurice Greenberg resigned.
AIG shares look cheap. The stock (symbol AIG) trades for 11 times the $5.67 a share that analysts expect the company to earn this year and just ten times 2007 forecasts of $6.18 a share, according to Thomson First Call. By contrast, the average property-and-casualty-insurance stock sells at 12 times 2006 profit estimates. Given that AIG is a leader in several insurance businesses and has better access to emerging markets than it rivals, the discount may not be warranted. Cohen thinks share are worth $75.
-
The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)State Taxes Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
-
Want To Retire at 55? See If You Can Answer These Five QuestionsWho said you can’t retire at 55? If you say yes to these questions, you may be on your way to an early retirement.
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have TodaySherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
-
If You'd Put $1,000 Into UnitedHealth Group Stock 20 Years Ago, Here's What You'd Have TodayUNH stock was a massive market beater for ages — until it wasn't.
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
How to Invest for a Fall Interest Rate Cut by the FedA lot can happen between now and then, but the probability the Fed cuts interest rates in September is back above 80%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
-
How the Stock Market Performed in the First 6 Months of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You'd Put $1,000 Into Berkshire Hathaway Stock 20 Years Ago, Here's What You'd Have TodayBerkshire Hathaway is a long-time market beater, but the easy money in BRK.B has already been made.
-
If You'd Put $1,000 Into Procter & Gamble Stock 20 Years Ago, Here's What You'd Have TodayProcter & Gamble stock is a dependable dividend grower, but a disappointing long-term holding.
