Analysts at Deutsche Bank raised their price target on American International Group Inc (NYSE:AIG) after a key meeting with the CEO of the insurer’s Property and Casualty division. Analysts Joshua Shanker and Phil Stefano increased their target from $52 per share to $56 per share, saying that the meeting bolstered their confidence in the division’s margin improvements.

AIG

Greater Margin Improvements Expected At AIG

After their “day and a half” meeting with Handcock, the analysts said they are “more confident” that American International Group Inc (NYSE:AIG) is on track to hitting a 90 to 95 percent combined ratio in its Property and Casualty division by 2015.

In fact, they said it looks like the improvements are ahead of schedule. They also said it appears as if paid loss trends are improving more quickly than results from the results from the company’s generally accepted accounting principles are showing.

AIG’s Plans For Returning Capital

The insurer’s management has said it hopes to begin a “modest” dividend and keep buying back shares this year, although it is not yet ready to speak about the views of its board members, the Federal Reserve or the rating agencies. The company does say it’s standing firmly on the target set by management in May 2011.

That target calls for returning $25 to $30 billion in capital to shareholders by the end of 2015. According to Hancock, hybrid debt buybacks, dividends on common shares and possible future acquisitions count toward that target.  Last year American International Group Inc (NYSE:AIG) bought back $13 billion worth of common stock, and the company repurchased $3 billion in hybrid debt this year to date. The company is stating its progress as being ahead of its plan.

Potential Impact From AIG’s SIFI Designation

Recently it was announced that AIG would likely receive the SIFI (systemically important financial institution) designation from the Federal Reserve. Some analysts have suggested that this designation would impact the insurer’s ability to return capital to shareholders. Hancock however, “suggested” that those who were concerned about this might be wrong.

At this point the guidelines for the non-bank stress tests that will be conducted on firms like AIG have not been finalized. Hancock points out that when the stress tests were underway on U.S. banks, the Fed didn’t know if the banks had enough capital. However, he said AIG prepaid and shut down its credit facility with the Fed. Before the Fed would let the insurer exit, it wanted to make sure that it had enough capital to sustain itself without help. Hancock said that since the Fed is already aware of AIG’s financial conditions and operations, he suspects that the Fed believes AIG will be able to pass the non-bank stress test.

Revised Estimates For AIG

The analysts said they decreased next year’s combined ratio by 50 basis points, but they modeled for a bigger 17-cent quarterly common dividend, which causes a modest slowdown in the company’s share buybacks. After their revisions, they modeled for $2.5 billion in share buybacks this year and $5 billion next year.