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Bank of America downgraded American International Group (NYSE:AIG) to Neutral from Buy as analyst Joshua Shanker expects the insurer will have a harder time logging year-over-year growth,partly due to its sale of the Validus reinsurance business.
The sold business had higher underwriting margins than most of AIG's business, the analyst noted in a note to clients. "While well-publicized, we still think this makes it difficult for the company to signal YoY improvement to investors," he said.
AIG shares dropped 1.4% in Tuesday premarket trading.
Furthermore, Shanker believes commercial property and casualty loss ratios have peaked, "making it difficult for AIG (AIG) to improve its loss ratio pro forma for the Validus sale."
Meanwhile, the company's ongoing divestment of its Corebridge (NYSE:CRBG) also makes the company's earnings path more complicated. With it still holding a majority of CRBG shares, CRBG results are still consolidated with AIG's in analysts' EPS estimates.
In its Q4 results, AIG said it will reduce its exposure, currently at 52%, to a minority share, at which point Corebridge's (CRBG) results will be deconsolidated. The company is "approaching the final steps of the Corebridge deconsolidation," Chairman and CEO Peter Zaffino said during AIG's earnings call.
BofA's Shanker said, "Depending on the size of future transactions and AIG/CRBG share prices, upon deconsolidation, we expect stand-alone AIG's EPS to be about 10% lower than our current forecast."
However, significant shares repurchases could support the stock price and "a low price-to-book multiple should provide price support," the analyst added.
His Neutral rating contrasts with the SA Quant rating and the average Wall Street rating, both at Buy.