Jeff Auxier of Auxier Asset Management presented his investment thesis on American International Group (US: AIG) at Best Ideas 2022.

Thesis summary:

American International Group is one of the largest insurance companies in the world, with over a century of experience. AIG has a renewed focus on improving operations; CEO Peter Zaffino has been a key proponent of this focus since joining the company in 2017. Management expects to cut $1 billion in costs by the end 2022, with a combined ratio under 90%.

AIG continues to return capital to shareholders, and they plan to buy back $6 billion of shares or 10+% of their market cap by the end of 2022. They also pay a consistent dividend, with a yield of 2%. Debt repayment has been a top priority, with long-term debt declining by 80% since the financial crisis. The company’s TTM adjusted earnings are $4.48 per share, and consensus earnings estimates are $4.75 for 2021 and $5.39 for 2022.

According to Insurance Journal, global insurance premiums are expected to surpass $7 trillion for the first time by mid-2022, and the property and casualty industry is seeing the strongest pricing in two decades.

The recent estimated P/E for 2021 of 13x represents a ~50% discount to the overall market. In March 1999, AIG was trading at ~4x revenues and ~33x earnings. Today, the shares trade at ~1x revenue and below book value, suggesting a deep value opportunity.

Listen to this session:

audio recording

No slide presentation accompanies this session.

About the instructor:

Jeff Auxier began lessons in finance early–at age 11, mowing the lawn of Robert Pamplin Senior the former long-time CEO of Georgia Pacific and recipient of the “World’s Top CEO Award”. Mr. Pamplin tutored Jeff on living a life of ethics. As Jeff puts it, “Mr. Pamplin always put his shareholders first and believed business should be transparent. He said the language of business is accounting, and that if you can’t speak the language, you can’t make money.” In 1981, Jeff graduated with honors from the University of Oregon with a degree in Finance and an emphasis on accounting.

Immediately, Jeff began calling or personally meeting with some of his investment heroes, long before they became today’s financial rock stars. Names like Warren Buffett. Not yet known as the Oracle of Omaha, Mr. Buffett graciously took several of Jeff’s calls and offered advice, most notably, “Number one don’t lose your principal and number two, never violate the first rule.” To this day, the cornerstone of the Auxier Focus Fund is respect for the power of compounding.

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