AIG’s lost decade is not yet behind it

NEW YORK (Reuters Breakingviews) - Anyone who has held shares in American International Group since the end of 2007 is still nursing a 95% stock-price loss. That’s even worse than fellow crisis basket case Citigroup . The insurer is, arguably, finally emerging from a lost decade after receiving a controversial $182 billion U.S. government bailout in 2008. But investors remain wary.

The disaster 10 years ago centered on AIG’s financial-products unit, which had sold huge amounts of supposedly not-very-risky credit protection on subprime-mortgage products. The consequences included a $62 billion loss in a single quarter, the final period of 2008.

Employees were vilified, and some critics labeled the bailout a conspiracy to help banks, because it enabled AIG to pay billions to trading counterparties including Goldman Sachs and European institutions like Société Générale and Deutsche Bank.

AIG offloaded assets including its historic Asian life-insurance arm AIA, which has more than tripled in value since it was floated in Hong Kong in 2010. Repaying the government in full in December 2012 was a signal achievement of the then chief executive, the late Bob Benmosche.

Revenue shrank steadily under Benmosche, Peter Hancock and, since May last year, Brian Duperreault, as successive CEOs fought to bring both continuing businesses and problematic legacy lines under control.

Duperreault is an industry guru and veteran of AIG, insurer ACE, Marsh & McLennan and Bermuda-based Hamilton Insurance. Ask around his head office in New York, and people say he is a leader who can make the company hum again and who’s assembling a stellar team.

The removal of AIG’s “systemically important” designation by regulators last year was a landmark, too. It even looks like a different company: without AIA, with a focus on stronger underwriting practices, and with ambitions to grow again. The company in July closed its biggest acquisition since the crisis – the $5.5 billion purchase of Validus, a Bermuda reinsurer with a Lloyd’s syndicate and catastrophe-bond asset manager.

Yet AIG still isn’t back to profitable growth, and the roughly $50 billion group’s shares are priced at a nearly 25% discount to book value, far lower than most peers. Investors don’t yet accept that the company’s dismal recent past is behind it. Maybe that’s something AIG can achieve in 2019, its centennial year.