American International Group Inc (AIG), MetLife Inc (MET) & Assured Guaranty Ltd. (AGO): What Will Happen to These Insurance Businesses?

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Because municipal bond insurance is paid up front, Assured Guaranty Ltd. (NYSE:AGO) will have investment income from these premiums well into the future. However, not everything is glowing. If the recovery of the US economy is not consolidated with a clear decline in the unemployment rate, mortgage delinquencies could return to high levels, testing again the firm´s financial capabilities. So, there is still quite a possibility that claims from bankrupt municipalities and insured second-lien and Alt-A residential mortgage-backed securities could develop in the near term. What’s more, second-lien claims are particularly difficult because payments are made over a shorter duration than first mortgage claims.

The stock is trading at 5.6 times its earnings, quite lower than its competitors’ mean valuation of 11.7.  As many analysts highlight, a clever management in the past and the present reasonable debt/capital at 15% amid sufficient cash flow to cover interest payments comfortably, supports a Buy recommendation for Assured Guaranty Ltd. (NYSE:AGO).

Bottom line

Overall, I expect these three companies to benefit from a recovery in the economy and show better performance or along with the equity market. Although Metlife Inc (NYSE:MET) does not offer compelling growth prospects, American International Group Inc (NYSE:AIG) and Assured Guaranty Ltd. (NYSE:AGO) provide interesting entry points for long-term investors; consider buying before valuations escalate.

Victor Selva has no position in any stocks mentioned. The Motley Fool recommends American International Group. The Motley Fool owns shares of American International Group and has the following options: Long Jan 2014 $25 Calls on American International Group.

The article What Will Happen to These Insurance Businesses? originally appeared on Fool.com.

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