By Andrew Bary
American International Group has completed a major turnaround since the property-and-casualty insurer nearly collapsed during the 2008-09 financial crisis.
A streamlined and increasingly profitable AIG offers investors an inexpensive insurance play. That's doubly true right now. The insurer's shares dropped 7% in early January on surprise news that CEO Peter Zaffino would step down on June 1 while remaining chairman.
That move disappointed Wall Street because Zaffino, 59, has led AIG for the past five years and overseen the company's revival, highlighted by an improvement in its formerly poor insurance underwriting results.
AIG said Zaffino's decision was his own and that its board "remains very confident in Peter's leadership and integrity."
AIG shares, at about $72, are down 14% so far this year after hitting a new 52-week low this past week.
"On any metric, the stock is cheap now," says Colin Hudson, a co-manager of the Oakmark Equity and Income fund, which owns shares. "Zaffino has done a fantastic job turning around AIG. I understand the disappointment that Zaffino will step down as CEO, but he's leaving the company on a strong footing."
AIG stock trades below its book value of $75 a share -- a discount to peers like Travelers, Chubb, and Hartford Insurance Group, which trade for 1.7 to two times book. AIG also trades for about nine times estimated 2026 earnings of nearly $8 a share, also a discount to P&C peers.
The entire P&C sector has been weak this year, with major stocks, excluding AIG, down an average of about 5%. This reflects concern that P&C insurance pricing is weakening after several years of strength.
AIG has underperformed the sector due to the Zaffino departure and waning speculation about a potential takeover bid by industry leader Chubb for AIG. That talk was prompted by a December report in an industry publication, Insurance Insider US, that Chubb had made an "informal approach to AIG." Chubb denied that any offer was made, and AIG said that it isn't for sale.
When AIG earlier this month named Eric Andersen, an executive at Aon, a large insurance broker and consulting firm, to succeed Zaffino as CEO, it further dampened takeover talk because it signaled no change in AIG's strategic direction, according to a note from UBS analyst Brian Meredith.
While the takeover talk has subsided, a Chubb/AIG combination isn't out of the question. There is strategic merit to creating a larger P&C insurer. Such a merger would probably "involve material expense synergies due to duplicative functions," BofA Securities analyst Joshua Shanker wrote in December.
Another intriguing aspect of a possible deal is that it would allow a member of the Greenberg family to once again head AIG.
The father of Chubb's CEO Evan Greenberg, 70, is insurance legend Maurice "Hank" Greenberg, 100, who built AIG into the world's dominant P&C insurer over decades before leaving the company in 2005 amid board concerns about several regulatory inquiries at the time, according to coverage in The Wall Street Journal.
Chubb has about $56 billion of annual premium revenue, more than double the $24 billion at AIG. Its market capitalization is $118 billion, three times that of AIG, which also has a large investment portfolio totaling $89 billion.
AIG operates globally and offers a range of P&C insurance policies, including directors and officers coverage, workers' compensation, general liability, marine, and airline. It gets about a quarter of its premiums from policies for individuals, including a high-end homeowners program called Private Client Select that competes against Chubb's Masterpiece.
AIG required a government bailout during the financial crisis after large losses at its now-shuttered financial derivatives unit. That federal support resulted in huge dilution to shareholders. There followed a decade of poor underwriting results as AIG underpriced insurance policies in what analysts called a bid to maintain market share.
Results have improved considerably under Zaffino. The company has had substantial underwriting profits in each of the past five years -- helped by a strong market for P&C pricing.
Zaffino has also shrunk AIG to its core P&C business. The company sold its reinsurance business, Validus, in 2023, and took public its life and retirement business as Corebridge Financial in 2022.
AIG has sharply reduced its Corebridge stake to just under 10%, and used the sizable proceeds from several Corebridge stock sales to help fund a large stock-repurchase program. AIG bought back 17% of its stock -- some $8.6 billion -- in the five quarters ending in the third quarter.
Buybacks however are expected to be more modest at $1 billion in 2026, the company said on its third-quarter conference call.
It's possible that AIG may boost the buyback when it reports fourth-quarter results on Feb. 10 due to the weakness in the stock. "With the stock in the low 70s, AIG could get more aggressive," Hudson says.
AIG announced a few growth initiatives in conjunction with the third-quarter earnings including a deal to take over some P&C underwriting business from Everest Group with about $2 billion of annual premiums.
KBW analyst Meyer Shields says that AIG is "scaling intelligently" in a softer market. He has an Outperform rating and a price target of $96.
And the "soft market" for insurance pricing may be somewhat overstated. While prices of property coverage are down double digits this year following a light hurricane season in 2025, many types of coverage like general liability are still rising at close to 10%. AIG's North American pricing, excluding property, was up 5% in the third quarter, down from a 6% increase in the second quarter -- hardly a major change.
P&C insurers earn profits from underwriting and by investing the premiums. A soft market doesn't mean underwriting profits will evaporate, but industry profit growth could slow.
CFRA analyst Cathy Seifert says the "kerfuffle" around AIG should settle down as the new CEO settles in. 'You've seen a deflation of the takeover balloon, and the management transition was less than stellar," she says. Analysts and investors had expected Zaffino to stay on for a few more years -- his contract is set to expire in 2027. Seifert has a Buy rating and $90 price target on the stock.
AIG isn't in a class with Chubb in returns, underwriting results, and culture, but it's narrowing the gap and trades at a discount to Chubb.
AIG's financial reports also are a tough slog. The company's preferred earnings measure that it calls "adjusted after-tax income attributable to AIG common shareholders" includes about 20 adjustments to operating earnings.
AIG laid out some ambitious financial goals at its investor day last year. It aims to boost earnings per share by 20% annually over the 2025 to 2027 period, boost its dividend by 10% a year, cut its expense ratio to under 30% of premium revenue, and generate a core return of equity of 10% to 13%. So far, it's on track for those goals.
AIG's adjusted earnings are expected to be up 40% in 2025 and 12% in 2026. The dividend was raised 12.5% in 2025 and now offers a yield of 2.5%.
AIG offers a low valuation, an improving earnings outlook, and the possibility of a takeover. That seems like a risk worth taking.
Write to Andrew Bary at andrew.bary@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 23, 2026 11:27 ET (16:27 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments