Three Reasons to Buy American International Group Inc (AIG)

The Allstate Corporation (NYSE:ALL) managed to report better than expected earnings for the last quarter in spite of increased losses from catastrophic events, higher premiums and an improved combined ratio – the tally of losses and costs per $100 of written premiums – were the main reasons for the better than expected results. All of the company´s insurance arms reported higher premiums, with property and casualty premiums growing 2.5% year over year.

The same goes for Travelers Companies Inc (NYSE:TRV); the company has faced two seriously damaging hurricanes in the last two years, yet increased premiums have produced earnings well above analyst´s expectations for the last quarter. The company reported an increase of 11% in both net and operating income for the quarter, and management attributed this performance to “continued improvement in underlying underwriting margins in all segments.”

The Chubb Corporation (NYSE:CB) did even better than its competitors.  Since it’s not very exposed to Property Casualty, it managed to report lower catastrophe losses for the last quarter. But that didn´t stop Chubb from rising insurance premiums, so earnings were strong both from the point of view of income and losses. The Chubb Corporation (NYSE:CB) reported a big increase of 36% in earnings per share for the March quarter.

After years of lackluster industry returns due to falling premiums, high catastrophe losses and low returns on fixed income investments due to rock bottom interest rates, it looks like insurers are finally starting to raise their premiums and increase profitability. This should provide a welcome tailwind for American International Group Inc (NYSE:AIG) on its way to higher profitability and accelerating growth.

Bottom Line

AIG is leaving its problems behind, and the company is now ready to focus on increasing profitability and expanding its business. Signs of progress are quite clear at this stage, and improving industry conditions bode well in terms of future possibilities. In spite of that, the stock is trading at bargain valuation levels, so this insurance powerhouse looks like a compelling opportunity.

The article Three Reasons to Buy AIG originally appeared on Fool.com and is written by Andrés Cardenal.

Andrés Cardenal owns shares of American International Group (NYSE:AIG).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. Andrés is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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