American International Group Inc (NYSE:AIG) first quarter profit fell 31 percent year over year to $2.21 billion, as the company stopped benefiting from certain holdings, including Asian Life Insurer, which it sold last year.  The Wall Street Journal reported that despite the drop in profits, EPS beat consensus estimates ($0.87) by $0.47 coming out at $1.34. Bank of America Corp (NYSE:BAC) analysts highlighted that the significant upside surprise was attributable to non-sustainable elements, such as alternative investment income, low catastrophe losses, and mark to market gains in investment book.

American International Group

American International Group Inc (AIG) Improvements

Bank of America Corp (NYSE:BAC) analysts noted improvement in AIG’s life, and property/casualty (P/C) segments for the first quarter of 2013. These segments comprise roughly 86 percent of earnings. P/C profit of $1.59 billion was supported by a lower loss ratio in first quarter of 2013 of 63.3 percent versus the 68.0 percent recorded a year ago. Loss ratios excluding catastrophes have improved for six consecutive quarters. Such improvement together with price increases, better underwriting, and an improved business mix, should bolster profits in P/C for upcoming quarters; Bank of America analysts stated. The US commercial segment within P/C was bolstered by a 7.4 percent rate hike and increases in new business.

American International Group Inc (NYSE:AIG)’s Life and Retirement segment reported profits of $1.39 billion, including positive impact of alternative investment income. The Life segment was underpinned by strong equity markets and favorable fee trends. American International Group Inc (NYSE:AIG) continues to effectively manage spreads minimizing the impact of the low interest rate environment. Finally, assets under management increased 12 percent to $296.9 billion from a year ago bolstered by strong fixed and equity investment performance and additional deposits. Bank of America foresees continued profit stability in this segment.

American International Group Inc (NYSE:AIG) is focusing on improving structure and technology on its two main segments, Property/Casualty and Life. According to CEO Robert Benmosche, such investments are important to realizing his vision for a slimmed down company and he sees returns on them come to fruition in 2013. AIG is also targeting an improved capital structure, and wants to reduce outstanding debts through tender offers and debt maturities. Bank of America analysts think the pending sale of ILFC could generate proceeds of $3.6-$3.8 billion and that American International Group Inc (NYSE:AIG) could deploy this capital in share buybacks or a reinstated dividend (pending Fed approval). The firm also has liquidity of $15 billion currently, but about $5.5 billion is allocated toward contingent stress needs of direct investment book and the balance may be allotted to pay debt maturities.

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Source: AIG Investment Presentation, May 3, 2013

Bank of America Corp (NYSE:BAC) analysts raised their 2013 estimate from $3.50 to $4.05 EPS due to improvements in AIG’s core businesses. Their target price for the stock is $49 for year end 2013 and they reiterate their buy recommendation.