American International Group Inc (NYSE:AIG) has been downgraded today by Goldman Sachs. Furthermore, the giant insurer has been removed from the firm’s conviction buy list. Goldman believes that shares of AIG have limited upside after a huge surge in value this year. Below is a brief excerpt from the report followed by the document in PDF.

AIG

American International Group Inc (NYSE:AIG) Summary from Goldman

We remove shares of American International Group Inc (NYSE:AIG) from the Americas Buy List and downgrade to Neutral, as we see limited upside to our $46, 12-month price target. AIG reported results on Thursday, May 2, that beat us and consensus on a headline basis, and underlying results were in line with our expectations. We expect P&C underwriting results to continue to improve, but we believe more is needed to justify further outperformance in shares. Since being added to the Americas Buy List on May 9, 2012, AIG shares are up 42.9% versus a 19.4% increase for the S&P 500. Over the past 12 months, shares are up 38.5% versus the S&P 500 up 18.1%.

Current view

We continue to believe that AIG will see P&C margins improve and underwriting income rise, but following recent outperformance we believe that current shares now well reflect the fundamental story, particularly on the P&C side. Upside to shares will likely need to come from technical developments outside of P&C—namely capital deployment—and we are not confident that AIG’s priority for the next 12 months will shift towards buybacks until it has satisfied both rating agencies and regulators, the latter of which will reflect a yet undefined framework and timeline. We revise estimates primarily to reflect higher underwriting income and lower debt service costs offset by a decline in investment income in both P&C and Life segments
Valuation and risks

Our 12-month price target of $46 is unchanged and is based on a weighted average of a top-down valuation and sum-of-the – parts analysis. Key downside risks include deteriorating P&C profitability, regulatory or rating agency pressure which slows share repurchase activity, credit and interest rate volatility, and an inability to adequately monetize non-core assets along the anticipated timeline. Upside risks include better-than-expected P&C margin expansion, capital generation from non-core activities, and the ability to repurchase shares either more rapidly or to a larger degree than we currently estimate.

Further Reading: American International Group profit falls, fundamentals improving

Full PDF AIG downgrade